You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for theproject are as follows:Years01-10Cash Flow-100+17On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.39. Assume that the rate of return available onrisk-free investments is 6% and that the expected rate of return on the market portfolio is 14%.a. What is the project IRR?Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.b. What is the cost of capital for the project?Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.c. Does the accept-reject decision using IRR agree with the decision using NPV?> Answer is complete but not entirely correct.a. IRR17.12%b. Cost of capital17.22%c. Does the accept-reject decision using IRR agree with the decision using NPV?Yes

B) As per CAPM-Cost of capital = Risk-free rate + Beta*(Market rate-Risk free rate)…

Answered: You are a consultant to a firm…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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