You have the following information about Burgundy Basins, a sink manufacturer. Equity shares outstanding Stock price per share Yield to maturity on debt Book value of interest-bearing debt Coupon interest rate on debt Market value of debt Book value of equity Cost of equity capital Tax rate 20 million $40.00 7.5% $320 million 4.8% $290 million $500 million 14% 35% Burgundy is contemplating what for the company is an average-risk investment costing $40 million and promising an annual after-tax cash flow of $6.4 million in perpetuity.

a. What is the internal rate of return on the investment?

b. What is Burgundy's weighted-average cost of capital?

c. If undertaken, would you expect this investment to benefit share- holders? Why or why not?

AppendixLO1