Your Firm Has an Average-Risk Project Under Consideration A)About 12

question 13

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 8.00%,the cost of preferred stock is 11.00%,the cost of common stock is 14.00%,and the WACC adjusted for taxes is 13.00%,what is the IRR of the project given the expected cash flows listed here? Use a financial calculator to determine your answer. $$\begin{array} { | l | c | c | c | c | } \hline \text { Category } & \mathrm { T } _ { 0 } & \mathrm {~T} _ { 1 } & \mathrm {~T} _ { 2 } & \mathrm {~T} _ { 3 } \\\hline \text { Investment } & - \$ 2,000,000 & & & \\\hline \text { NWC } & - \$ 250,000 & & & \$ 250,000 \\\hline \text { Operating Cash Flow } & & \$ 850,000 & \$ 850,000 & \$ 850,000 \\\hline \text { Salvage } & & & & \$ 50,000 \\\hline \text { Total Incremental Cash Flow } & - \$ 2,250,000 & \$ 850,000 & \$ 850,000 & \$ 1,150,000 \\\hline\end{array}$$

• A)About 12.13%
• B)About 13.00%
• C)About 24.95%
• D)There is not enough information to answer this question.

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