5. You are evaluating BUs expansion of on-campus student dormitory. The construction of the building will cost $100 million in this year (year 0) and the new building will bring in $20 million new cash flows each year for the next ten years (year 1 to year 10). After that, the building will be demolished. You have decided to use equity to finance the project and you believe the BETA of the universitys equity is 0.90. The risk-free rate is 6% and the market risk premium is 10%.

a) What is the cost of capital?

b) Using the cash flows given in the question, can you calculate the IRR? Should you accept this project using the IRR rule?