Your Firm Has an Average-Risk Project Under Consideration

question 40

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 9.50%,the cost of preferred stock is 10.00%,the cost of common stock is 12.00%,and the WACC adjusted for taxes is 11.50%,what is the IRR of the project,given the expected cash flows listed here? Use a financial calculator to determine your answer.

• A)About 11.50%
• B)About 28.30%
• C)About 14.67%
• D)There is not enough information to answer this question.

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Definitions:

Investment Account

An account held at a financial institution for the purpose of managing securities, such as stocks and bonds, for investment purposes.

Equity Method

An accounting technique used to record investments in other companies, where the investment is initially recorded at cost and adjusted over time for the investor's share of the investee's net profits or losses.

Undervalued Inventory

Inventory items that are reported at a value lower than their actual market value or cost of replacement.

Non-Controlling Interest

A minority shareholding in a company, representing an ownership stake that is less than 50% and does not allow for control over the company's operations.