Maximum initial cost of company would be willing to pay
Course:- Financial Management
Reference No.:- EM13942985

Assignment Help
Assignment Help >> Financial Management

Och, Inc., is considering a project that will result in initial aftertax cash savings of $1.76 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 11.6 percent, and an aftertax cost of debt of 4.4 percent. The cost-saving proposal is somewhat riskier than the usual projects the firm undertakes; management uses the subjective approach and applies an adjustment factor of +1 per cent to the cost of capital for such risky projects.

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

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Financial Management) Materials
On average, a firm purchases $2,000,000 in merchandise a month. It has inventories equal to two month purchases on hand at all times. If the firm analyzes its accounts using a
Ted has bought a horse transporter for hi horse ranch for $35,000. The reason is he used to rent transporters to take his horses to competitions and wants to save money on tho
Renfro Rentals has issued bonds that have a 11% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 9%. Wha
Oberon, Inc., has a $30 million (face value) 8-year bond issue selling for 97 percent of par that pays an annual coupon of 8.30 percent. What would be Oberon’s before-tax comp
Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $5.7 million. The equipment will be depreciated straight line o
At the dinner table, your father is extolling the benefits of investing in bonds. He insists that as a conservative investor he will make only investments that are safe, and w
E-Eyes.com just issued some new preferred stock. The issue will pay an annual dividend of $24 in perpetuity, beginning 13 years from now. If the market requires a return of 3.
Holdup Bank has an issue of preferred stock with a $8 stated dividend that just sold for $95 per share. What is the bank's cost of preferred stock? The price of any asset is t