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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

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 + 19

On the basis of the behavior of the firms stock, you believe that the beta of the firm is 1.30. Assume that the rate of return available on risk-free investments is 5% and that the expected rate of return on the market portfolio is 15%.

a. What is the project IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b. What is the cost of capital for the project? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

c. Does the accept-reject decision using IRR agree with the decision using NPV?

multiple choice

  • Yes

  • No

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