Business, 23.04.2021 15:30 maribel5979

You have the following information about Burgundy Basins, a sink manufacturer. Equity shares outstanding 20 million
Stock price per share $37
Yield to maturity on debt 5.5%
Book value of interest-bearing debt $340 million
Coupon interest rate on debt 4.2%
Market value of debt $235 million
Book value of equity $390 million
Cost of equity capital 11.4%
Tax rate 35%

Burgundy is contemplating what for the company is an average-risk investment costing $34 million and promising an annual ATCF of $4.7 million in perpetuity.

Required:
a. What is the internal rate of return on the investment? (hint: use the equation for a perpetuity)
b. What is Burgundy’s WACC?
c. If undertaken, would you expect this investment to benefit shareholders? Why and why not?

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