8.8 You have the following information about Burgundy Basins, a sink manufacturer.

Equity shares outstanding- 20 million

Stock price per share- $40.00

Yield to maturity on debt- 7.5%

Book value of interest-bearing debt- $320 million

Coupon interest rate on debt- 4.8%

Market value of debt- $290 million

Book value of equity- $500 million

Cost of equity capital- 14%

Tax rate- 35%

Burgundy is contemplating what for the company is an average-risk investment costing $40 million and promising an annual ATCF of $6.4 million in perpetuity.

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

b. What is Burgundys weighted-average cost of capital?

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