Purchase of real estate and renovation of the real estate

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You have a project that will involve the purchase of real estate and renovation of the real estate.

Your analysis indicates the project will have an IRR of 10 percent. Financing will consist of a mortgage (debt) of $90,000 dollars which represents 80 percent of the financing. The pretax cost of debt is estimated to be 8.5 percent. The remaining proportion of the financing will come from selling shares of your stock portfolio. Historically, your return has been 11 percent. Your marginal tax rate is 35 percent.

How would excel be used to figure this out?

Should you pursue the project?

Yes, WACC of 9 percent is less than IRR of 10 percent.

Yes, WACC of 5.85 percent is less than IRR of 10 percent.

Yes, WACC of 6.62 percent is less than IRR of 10 percent.

Reference no: EM132324990

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