Sports EX Inc. is a Sports Shoes Company which is considering investing in a new equipment for

the production of a new line of Tennis and Football Shoes for its elite customers. The new

equipment will cost $$250,000,$ and an additional $$80,000$ is needed for installation. The

equipment which falls into the MACRS $3-$yr class, would be sold after three years for $$35,000.$

The equipment will generate additional annual revenues of $$210,000,$ and will have annual

operating expenses of $$60,000.$ An inventory investment of $$60,000$ is required during the life of

the project. Sports EX is in the $30$ percent tax bracket, and has the same risk as the firm's

existing assets. The capital required for the project has been arranged as follows: Debt: $1,000$

$8\%,10-$year, semi$-$annual coupon bonds with a par value of $$100,$ each selling for $90\%$ of its

face value Common stock: $2,500$ shares selling for $$96$ each with a beta of $1\mathrm{.}05.$ The market's

rate of return is $11\%$ and risk$-$free investments offer a $4\%$ return.

You are required to

Estimate the project's IRR $(2$ marks$)$