You have the following information about company XEquity shares outstanding: 20 millionStock price

You have the following information about company XEquity shares outstanding: 20 millionStock price

You have the following information about company X

Equity shares outstanding: 20 million

Stock price

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 $40 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)