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 -100 1 - 10 +16 On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.43. Assume that the rate of return available on risk-free investments is 4% and that the expected rate of return on the market portfolio is 15%. 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.)
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 -100 1 - 10 +16 On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.43. Assume that the rate of return available on risk-free investments is 4% and that the expected rate of return on the market portfolio is 15%. 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.)
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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Transcribed Image Text: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
-100
1 - 10
+16
On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.43. Assume that the rate of return available on
risk-free investments is 4% and that the expected rate of return on the market portfolio is 15%.
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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