Your Firm Has an Average-Risk Project Under Consideration A)About 11

question 77

Multiple Choice

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 8.50%,the cost of preferred stock is 9.00%,the cost of common stock is 11.50%,and the WACC adjusted for taxes is 10.50%,what is the IRR of the project,given the expected cash flows listed here? Use a financial calculator to determine your answer. $$\begin{array} { | l | c | c | c | c | } \hline \text { Category } & \mathrm { T } _ { 0 } & \mathrm {~T} _ { 1 } & \mathrm {~T} _ { 2 } & \mathrm {~T} _ { 3 } \\\hline \text { Investment } & - \$ 800,000 & & & \\\hline \text { NWC } & - \$ 50,000 & & & \$ 50,000 \\\hline \text { Operating Cash Flow } & & \$ 350,000 & \$ 350,000 & \$ 350,000 \\\hline \text { Salvage } & & & & \$ 20,000 \\\hline \text { Total Incremental Cash Flow } & - \$ 850,000 & \$ 350,000 & \$ 350,000 & \$ 420,000 \\\hline\end{array}$$

• A)About 11.50%
• B)About 12.30%
• C)About 14.67%
• D)There is not enough information to answer this question.

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