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6 Problem 14-20 WACC and NPV (LO4, 5) 2 points Taber Inc. is considering a project that will result in initial after-tax cash savings of $2.1 million at the end of the first year, and these savings will grow at a rate of 2% per year indefinitely. The firm has a target debt-equity ratio of .80, a cost of equity of 11%, and an after-tax cost of debt of 4.6%. 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 +3% 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? (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Maximum cost $22.95

6 Problem 14-20 WACC and NPV (LO4, 5) 2 points Taber Inc. is considering a project that will result in initial after-tax cash savings of $2.1 million at the end of the first year, and these savings will grow at a rate of 2% per year indefinitely. The firm has a target debt-equity ratio of .80, a cost of equity of 11%, and an after-tax cost of debt of 4.6%. 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 +3% 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? (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Maximum cost $22.95

EBK CFIN
EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter9: Capital Budgeting Techniques
Section: Chapter Questions
Problem 7PROB
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6 Problem 14-20 WACC and NPV (LO4, 5) 2 points Taber Inc. is considering a project that will result in initial after-tax cash savings of $2.1 million at the end of the first year, and these savings will grow at a rate of 2% per year indefinitely. The firm has a target debt-equity ratio of .80, a cost of equity of 11%, and an after-tax cost of debt of 4.6%. 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 +3% 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? (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Maximum cost $22.95
Transcribed Image Text:6 Problem 14-20 WACC and NPV (LO4, 5) 2 points Taber Inc. is considering a project that will result in initial after-tax cash savings of $2.1 million at the end of the first year, and these savings will grow at a rate of 2% per year indefinitely. The firm has a target debt-equity ratio of .80, a cost of equity of 11%, and an after-tax cost of debt of 4.6%. 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 +3% 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? (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Maximum cost $22.95
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