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Wacc and npv-och inc

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WACC and NPV

Och, Inc., is considering a project that will result in initial after tax cash savings of $1.85 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. The company has a target debt-equity ratio of .65, a cost of equity of 11 percent, and an after tax cost of debt of 4.3 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. under what circumstances should the company take on the project? (hint what is the acceptable maximum initial investment?)

Reference no: EM132788255

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