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Barley Inc. just hired you as their financial analyst. The company is thinking of expanding into a new product line that requires a new piece

Barley Inc. just hired you as their financial analyst. The company is thinking of expanding into a new product line that requires a new piece of equipment and wants your opinion. Here's the info:
Average return in the stock market is currently 7%. The risk free rate is 2%. Barley Inc. has a current beta of 1.25.
Barley Inc. has one bond currently outstanding that is selling for a premium, at 110. The bonds have a 5% annual coupon rate and pay interest annually. Assume $1,000 par value and 10 years remaining to maturity.
Barley Inc. must maintain at least a 60% equity to total asset ratio or face default on the bonds. The company has a 25% tax rate.
The project has an initial cost of $100,000. The equipment will have no salvage value at the end of the project in 5 years.
You did a pro-forma income statement and came up with the following net income figures:
Year 1=5,000
Year 2=15,000
Year 3=25,000
Year 4=22,000
Year 5=26,000
What is the IRR?
a.-2.028%
b.6.08%
c.15.43%
d.23.99%
e. None of the above is the answer.
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