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.

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 9.50%, 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.

Quizplus · Accepted Answer

To calculate IRR of the project, we need to calculate the present value of expected cash flows with the given WACC. Then, we need to solve for the rate of return that makes the present value of cash flows equal to the initial investment. Using a financial calculator, we get the IRR to be 14.67%. Therefore, the answer is (C) About 14.67%.

Your Firm Has an Average-Risk Project Under Consideration