What is the internal rate of return on the investment

Reference no: EM133666742

Problem

You have the following information about Burgundy Basins, a sink manufacturer.

Equity shares outstanding 20 million
Stock price per share $ 39
Yield to maturity on debt 7.5%
Book value of interest-bearing debt $ 350 million
Coupon interest rate on debt 4.4%
Market value of debt $ 245 million
Book value of equity $ 410 million
Cost of equity capital 11.8%
Tax rate 35%

Burgundy is contemplating what for the company is an average-risk investment costing $38 million and promising an annual ATCF of $4.9 million in perpetuity.

A. What is the internal rate of return on the investment?

B. What is Burgundy's weighted-average cost of capital?

Reference no: EM133666742

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