Your firm has an average-risk project under consideration. You choose to fund th

Question

Your firm has an average-risk project under consideration. You choose to fund the project in the same manner as the firm's existing capital structure. If the cost of debt is 9.00%, the cost of preferred stock is 12.00%, the cost of common stock is 16.00%, and the WACC adjusted for taxes is 14.00%, what is the IRR of the project given the expected cash flows listed here? Use a financial calculator to determine your answer. Category T0 T1 T2 T3 Investment -$2,000,000 NWC -$250,000 $250,000 Operating Cash Flow $850,000 $850,000 $850,000 Salvage $50,000 Total Incremental Cash Flow -$2,250,000 $850,000 $850,000 $1,150,000 A. About 12.13% B. About 14.00% C. About 24.95% D. There is not enough information to answer this question.

Explanation / Answer

IRR would be 12.13%

Investment -2000000 NWC -250000 Release of WC 250000 Opearting Cashflow 850,000 850,000 850,000 Salavge 50000 12.13% -2250000 850,000 850,000 1150000

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