You have the following information about company X
Equity shares outstanding: 20 million
per share: $40.00
Yield to maturity on debt: 7.5%
Book value of interest bearing debt: $320 million
Coupon interest rate on debt: 4.8%
Market value of debt: $290 million
Book value of equity: $500 million
Cost of equity capital: 14%
Tax rate: 35%
company X is contemplating what for the company is an average-risk investment costing million and promising an annual ATCF of $5.0 million in perpetuity.
a. What is the internal rate of return on the investment? (forumula)
b. What is the weighted-average cost of capital? (formula)
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