Company would be willing to pay for the project

Assignment Help Financial Management

Reference no: EM131300407

Scanlin, Inc., is considering a project that will result in initial aftertax cash savings of $1.88 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. The firm has a target debt−equity ratio of .85, a cost of equity of 12.8 percent, and an aftertax cost of debt of 5.6 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of 2 percent to the cost of capital for such risky projects.

What is the maximum initial cost the company would be willing to pay for the project? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole dollar amount, e.g., 32.)

Reference no: EM131300407

Questions Cloud

What is bonds current yield : Current Yield with Semiannual Payments A bond that matures in 9 years sells for $950. The bond has a face value of $1,000 and a yield to maturity of 9.8764%. The bond pays coupons semiannually. What is the bond's current yield?

What is the current market price of these bonds : Bond Valuation with Annual Payments Jackson Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 11%. The bonds have a yield to maturity of 5%. What is t..

What is your annual percent return : You purchased 1200 shares of ABC stock at the beginning of the year for 42.27$ per share that pays a dividend of $5 per share over the year. At the end of the year, the price is $43.88 per share. What is your annual percent return?

What is the yield on treasury securities : Determinant of Interest Rates The real risk-free rate of interest is 2%. Inflation is expected to be 3% this year and 5% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities?

Company would be willing to pay for the project : Scanlin, Inc., is considering a project that will result in initial aftertax cash savings of $1.88 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. What is the maximum initial cost the co..

What is their yield to maturity and their yield to call : Thatcher Corporation's bonds will mature in 17 years. The bonds have a face value of $1,000 and an 11% coupon rate, paid semiannually. The price of the bonds is $1,050. The bonds are callable in 5 years at a call price of $1,050. What is their yield ..

Maintain a constant growth rate : ASD Corp. will pay a dividend of $2.12 on each of its common shares next year. The company has stated that it will maintain a constant growth rate of 5.6% per year forever. If you require 7.1% return to invest in ASD stock.

Find the value of the annual gradient change : You want to buy a machine with the present worth of QR 100,000. You were able to finance it through a contract. The bank has set its monthly rate of return a 1.5% to be paid over 7 years. In problem 2, if the contract was conducted with an arithmetic..

What is the maturity risk premium for two-year security : The real risk-free rate is 3%, and inflation is expected to be 2.5% for the next 2 years. A 2-year Treasury security yields 8.75%. What is the maturity risk premium for the 2-year security?

User Account

All Pages