Bob's Taco Shopis considering aproject that will generate acash inflowof $15million in year one. The project'scash flow will then grow at 1 percentper year in perpetuity.

The firm finances 45 percentof all assets with debt, and the after-tax cost of debt is 3 percent. The firm estimatesthe cost of equity is 11percent.

Calculate the firm'sWACCand then use theWACC to determinethe maximum amount the firm should spend to undertake this project.

Multiple Choice

• $227 million
• $234 million
• $268 million
• $203 million
• $6 million