Solution-Firm evaluating an expansion of its current

Firm evaluating an expansion of its current business

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Reference no: EM132515846

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 +18

On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.31. 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 14%.

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.)

?c. Does the accept-reject decision using IRR agree with the decision using NPV?

Reference no: EM132515846

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Firm evaluating an expansion of its current business

Reference no: EM132515846

Reference no: EM132515846

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