ou are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts
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Question:
ou 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 + 14 On the basis of the behavior of the firms stock, you believe that the beta of the firm is 1.35. 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 13%.
a. What is the project IRR? (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? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
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