Project that will result in initial aftertax cash savings

Assignment Help Financial Management

Reference no: EM13934424

Scanlin, 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 will grow at a rate of 1 percent per year indefinitely. The firm has a target debt–equity ratio of 0.75, 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 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?

Maximun cost = ?

Reference no: EM13934424

Questions Cloud

Bond equivalent and effective annual yield to maturity bond : A 25-year maturity bond with par value $1,000 makes semi-annual coupon payments at a coupon rate of 8%. Find the bond equivalent and effective annual yield to maturity of the bond if the bond price is $960.

While-loop when the number of iterations : Use a while-loop when the number of iterations is not known before loop execution. Use a for-loop when the number of iterations is known before loop execution.

Discounted cash flow techniques : Discounted cash flow techniques are capital budgeting techniques that take into account both the time value of money and the estimated net cash flow from an investment. How is the NPV calculated and what is the decision rule?

Differences between nutrient-dense and energy-dense foods : Describe the differences between nutrient-dense foods and energy-dense foods. What are some characteristics of foods that make them nutrient-dense or energy-dense

Project that will result in initial aftertax cash savings : Scanlin, 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 will grow at a rate of 1 percent per year indefinitely. What is the maximum initial cost the co..

Why do companies apply overhead to jobs using a predetermine : Why do companies apply overhead to jobs using a predetermined (budgeted) overhead rate instead of applying actual overhead to jobs?

Importance of consuming nutrient dense foods : Consider the obesity epidemic and the importance of consuming nutrient dense foods and avoiding excess consumption of energy dense foods

What is the variance of this portfolio-standard deviation : Consider the following information: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .15 .39 .49 .29 Good .55 .15 .20 .08 Poor .25 −.01 −.09 −.07 Bust .05 −.20 −.24 −.10 a. Your portfolio is..

What is a job cost sheet : What is a job cost sheet? What information does it contain?

User Account

All Pages