Evaluate of effectiveness of investment project

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Reference no: EM131093298

The firm is considering a project that will result in initial after tax cash savings of 9 million dollars at the end of the first year. The firm has a target debt equity ratio of three a cost of equity of 22 percent and after tax cost of debt of 10 percent. The cost saving proposal is somewhat riskier than the usual project the firm undertakes. Management uses is subjective approach and applies adjustment factors of +3 percent to the cost of capital for such risky project. Calculate criteria to evaluate of effectiveness of investment project and decide under what circumstances should the firm take on the project.

Reference no: EM131093298

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