Windstone, a major tire manufacturer, is considering expanding into hubcap production. Windstone estimates that the cash inflows for the hubcap project will be $12M in year 1, $15M in year 2, and $17M in year 3. After year 3, the cashflows are expected to increase by 4% per year for the foreseeable future.

Windstone is currently financed with 55% debt and 45% equity. The WACC (required return for projects of average risk) is 11%, its cost of debt of 7.50%, its beta is 1.38, and its inventory turnover is 10.

a. If all of the cash investment required to enter into the hubcap project (i.e., the projects NINV) must be paid today, what is the maximum that Windstone would be willing to pay for this project?

b. If Windstone agreed to pay $257M today, what would be the projects internal rate of return?