Roberto Inc. is a manufacturing company. The company has always followed their ideal capital structure which the management insists is 40% debt and 60% equity capital. The company can issue bonds for 9% coupon rate with 22 years to maturity. The interest is paid semi-annually. The bonds can be issued with a price of $835.42 today. Roberto's marginal tax rate is 40%. For cost of equity, the company uses the CAPM (Capital Asset Pricing Model) based on SML (Security Market Line). The risk-free rate in the market is 8% and the market rate of return is 14%. The company has a beta of 1.1. Roberto is experiencing a highly abnormal growth rate of 30%. This growth rate is expected to continue for four years. After year four, the growth rate is expected to return to a normal 8% and remain constant afterwards for the foreseeable future. Roberto just paid a dividend of $1.15. Furthermore, Roberto is evaluating several projects to invest in. The top project that is being considered will cost $1,000,000 and promises to pay $500,000 in year one, $400,000 in year two, $300,000 in year three and $100,000 in year four. This project will cease to exist with no salvage value at end of year four. So, the cash flow would look like the following:

Year CF ($ in 000's)

1 -1,000 (Initial Outlay)

2 500

3 400

4 300

5 100

Based on the information provided above, answer the following question using Formula and Financial Calculator, No Excel.

Further evaluating the top project for Roberto, what is the anticipated IRR for the project?

a. 11.8%

b. 14.49%

c. 12.45%

d. 13.02%