You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows:   Years Cash Flow 0 – 100 1 - 10 + 15     On the basis of the behavior of the firm’s stock, you believe that the beta of the firm is 1.42. Assume that the rate of return available on risk-free investments is 6% and that the expected rate of return on the market portfolio is 14%.   a. What is the project IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)   IRR: ____%     b. What is the cost of capital for the project? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)   Cost of Capital_____%

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows:

 

Years Cash Flow
0 100
1 - 10 + 15
 

 

On the basis of the behavior of the firm’s stock, you believe that the beta of the firm is 1.42. Assume that the rate of return available on risk-free investments is 6% and that the expected rate of return on the market portfolio is 14%.

 

a. What is the project IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

IRR: ____%

 

 

b. What is the cost of capital for the project? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Cost of Capital_____%

 

 
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