SavedHelpSaProblem 12-16 WACC and NPVPink, Inc., is considering a project that will result in Initial aftertax cash savings of $1.77million at the end of the first year, and these savings will grow at a rate of 1 percent peryear indefinitely. The firm has a target debt-equity ratio of 75, a cost of equity of 11.7percent, and an aftertax cost of debt of 4.5 percent. The cost-saving proposal issomewhat riskler than the usual projects the firm undertakes; management uses thesubjective approach and applies an adjustment factor of +2 percent to the cost of capitalfor such risky projects.What is the maximum initial cost the company would be willing to pay for the project?(Do not round intermedlate calculations and enter your answer in dollars, not millionsof dollars, rounded to 2 decimal places, e.g, 1,234,567.89.)Maximum cost S180,986,062.00

Given information: After tax cash savings amounted to $1.77 million, Growth rate is 1% Debt-equity…

Pink, Inc., is considering a project that will result in initial aftertax cash savings of $1.77 million at the end of the first year, and these savings wil grow at a rate of 1 percent per year indefinitely. The firm has a target debt-equity ratio of 75, a cost of equity of 11.7 percent, and an aftertax cost of debt of 4.5 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 +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? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g, 1,234,567.89.)

Pink, Inc., is considering a project that will result in initial aftertax cash savings of $1.77 million at the end of the first year, and these savings wil grow at a rate of 1 percent per year indefinitely. The firm has a target debt-equity ratio of 75, a cost of equity of 11.7 percent, and an aftertax cost of debt of 4.5 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 +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? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g, 1,234,567.89.)

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 3CMA

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