What is maximum cost would be willing to pay for project

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Reference no: EM13948687

Nally, Inc., is considering a project that will result in initial aftertax cash savings of $6.9 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 .68, a cost of equity of 13.3 percent, and an aftertax cost of debt of 6.3 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.

Calculate the WACC. (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).

What is the maximum cost Nally would be willing to pay for this project?

Reference no: EM13948687

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