Business, 16.03.2020 17:06 beccahaileyowzryu

You have the following information about Burgundy Basins, a sink manufacturer. Equity shares outstanding 20 millionStock price per share $40.00Yield to maturity on debt 7.5%Book value of interest-bearing debt $320 millionCoupon interest rate on debt 4.8%Market value of debt $290 millionBook value of equity $500 millionCost equity of capital 14%Tax rate 35%Burgundy is contemplating what for the company is an average-risk investment costing $40 million and promising an annual ATCF of $6.4 million in perpetuity. What is the internal rate of return on the investment? (hint: use the equation for a perpetuity)What is Burgundy’s WACC?If undertaken, would you expect this investment to benefit shareholders? Why and why not?

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