Thompson Publishers is considering entering the college textbook market with a division called Thompson College Texts. In undertaking this venture Thompson plans on issuing $20 million in debt and $30 million in equity. The before tax cost of this debt is estimated to be 6% and the corporate tax rate for Thompson is estimated to be 30%. One of Thompson's major competitors in this market will be Wiley Publishing, which only sells college textbooks. Wiley has 1 million shares of common stock outstanding at $50 per share, $20 million in debt at a before tax cost of 5%, a corporate tax rate of 25%, and a beta coefficient 1.60.

a.) What beta should Thompson employ to evaluate the investment in the college textbook business?

b.) Given a risk-free rate of return of 3% and an expected market rate of return of 8%, what is Thompson's WACC?

C.) Calculate Thompson's IRR for this project and state whether Thompson should proceed with the project if it expects to receive after-tax cash flows of $16 million per year for 4 years? (Ignore flotation costs.)