You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows:

Years Cash Flow

0 -100

1 -10+15

On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.4. Assume that the rate of return available on risk-free investments is 4% and that the expected rate of return on the market portfolio is 12%.

a.What is the project IRR?

b.What is the cost of capital for the project?