You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for theproject are as follows:Years01-10Cash Flow-100+17On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.39. Assume that the rate of return available onrisk-free investments is 6% and that the expected rate of return on the market portfolio is 14%.a. What is the project IRR?Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.b. What is the cost of capital for the project?Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.c. Does the accept-reject decision using IRR agree with the decision using NPV?> Answer is complete but not entirely correct.a. IRR17.12%b. Cost of capital17.22%c. Does the accept-reject decision using IRR agree with the decision using NPV?Yes

B) As per CAPM-Cost of capital = Risk-free rate + Beta*(Market rate-Risk free rate)…

Answered: You are a consultant to a firm…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter7: Corporate Valuation And Stock Valuation

Section: Chapter Questions

Problem 25SP: Start with the partial model in the file Ch07 P25 Build a Model.xlsx on the textbook’s Web site....

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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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