Considering project-result in initial aftertax cash savings

Assignment Help Financial Management

Reference no: EM131044639

Scanlin, Inc., is considering a project that will result in initial aftertax cash savings of $1.71 million at the end of the first year, and these savings will 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 11.1 percent, and an aftertax cost of debt of 3.9 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. What is the maximum initial cost the company would be willing to pay for the project?

Reference no: EM131044639

Questions Cloud

Use present value as the method of analysis : You are the new financial manager,your grandfather is the current presiden of the firm. One of the first things you notice is your family's firm uses payback to make it's capital investment decisions. Tell your grandfather (very diplomatically as he ..

Russo home services-calculate revised depreciation expense : Russo Home Services cleans homes and businesses especially those with upholstered furniture and plie carpets. To remain competitive with like businesses, three years ago the company invested in some important equipment. Calculate the net book values ..

Offer price and total amount firm will raise net of spread : Nano Manufacturing wants to issue 2 million new shares. It has 4 million shares outstanding, which its investment banking firm estimates $65 million. If the investment banking firm charges a 4% spread, calculate the offer price and total amount ($) t..

Concluded that the demand for annual preventive clinic : Researchers have concluded that the demand for annual preventive clinic visits by children with asthma equals 1 + 0.00004 × Y − 0.04 × P . In this equation Y represents family income and P represents price. Calculate how many visits a child with a fa..

Considering project-result in initial aftertax cash savings : Scanlin, Inc., is considering a project that will result in initial aftertax cash savings of $1.71 million at the end of the first year, and these savings will grow at a rate of 1 percent per year indefinitely. What is the maximum initial cost the co..

What are interest and principal portions in first payment : A 30-year, $230,000 mortgage has a rate of 5.2 percent. What are the interest and principal portions in the first payment? What are the interest and principal portions in the second payment?

Dividends are expected to grow at constant rate : The Jackson–Timberlake Wardrobe Co. just paid a dividend of $1.85 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. Investors require a return of 12 percent on the company's stock. What ..

What are the companys external opportunities and threats : What are the company's external opportunities and threats? Develop an External Factor Evaluation (EFE) Matrix, explain what the company needs to improve on externally, and justify why it needs to be improved.

Portfolio with an expected return : You invest $100 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 12% and a standard deviation of 15% and a treasury bill with a rate of return of 5%. ______ of your money should be inv..

User Account

All Pages