(Answered) You have the following information about burgundy basins a

Finance

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

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%

Burgundy is contemplating what for the company is an average-risk investment costing $40 million and promising an annual after-tax cash flow of $6.4 million in perpetuity.

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

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

c. If undertaken, would you expect this investment to benefit share- holders? Why or why not?

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