Your firm is analyzing a project that will result in aftertax cash savings of $250,000 per year, starting next year. These savings will increase by 3%/year, forever. Your firm has a target debt-to-equity ratio of 0.65. The company's stock is currently trading at $52/share, recently paid a $1.80/share dividend, and dividend payments have been growing at 4.2%/year. The aftertax cost of debt is 5.5% and TC is 35%. Since this project is less risky than usual, management will apply an adjustment factor of -1.0% to the cost of capital for this project. What is the maximum cost of the project to accept it?
Your firm is analyzing a project that will result in aftertax cash savings of $250,000 per year, starting next year. These savings will increase by 3%/year, forever. Your firm has a target debt-to-equity ratio of 0.65. The company's stock is currently trading at $52/share, recently paid a $1.80/share dividend, and dividend payments have been growing at 4.2%/year. The aftertax cost of debt is 5.5% and TC is 35%. Since this project is less risky than usual, management will apply an adjustment factor of -1.0% to the cost of capital for this project. What is the maximum cost of the project to accept it?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 1 steps with 5 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education