The laundromat corporation is considering opening another coin-operated laundry in a city. It has estimated that opening the laundry would involve an initial cost of $100,000 and would generate a net cash flow of $32,000 in each of the five years, with no salvage value for the equipment and no recovery of operating expenses at the end of the five years. The corporation estimates that it would have to pay a rate of interest of 12 percent on its bonds and that it would face a marginal income tax rate of 40 percent. The interest on government securities is 10 percent. During the current year, the corporation expects to pay a dividend of $20 dollars on each share of its common stock, which sells for 10 times the current earnings. Management and outside analysts expect the growth rate of earnings and dividends of the corporation to be 7 percent per year. The return on the average stock of all firms in the market is 14 percent, and the estimated beta coefficient for the common stock on the corporation is 1.25. The corporation wants to maintain a capital structure of 30 percent debt.

Assume, that 100 percent of earnings are paid out as dividend current year.

Determine

a) the internal rate of return for the proposed project

b) the cost of debt for the corporation

c) the cost of equity capital by the risk-free-rate plus premium method

d) the cost of equity capital by the dividend valuation model

e) the cost of equity capital by the capital asset pricing model

f) the composite cost of capital if the firm uses the average of the cost of equity capital determined by each of the three methods

d) and whether or not the corporation should undertake the project?