What is the maximum initial cost of company

Assignment Help Financial Management

Reference no: EM132015406

Och, Inc., is considering a project that will result in initial aftertax cash savings of $1.89 million at the end of the first year, and these savings will grow at a rate of 2 percent per year indefinitely. The firm has a target debt–equity ratio of .8, a cost of equity of 12.9 percent, and an aftertax cost of debt of 5.7 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 +1 per cent to the cost of capital for such risky projects. What is the maximum initial cost of company would be willing to pay for the project?

Maximum cost ?

Reference no: EM132015406

Questions Cloud

Dynamic movement of hockey checking : In which planes of motion does the movement take place? What specific joints and joint actions are involved in this movement?

What is the company market value debt–equity ratio : Frusciante, Inc. has 190,000 bonds outstanding. What is the company’s market value debt–equity ratio?

Firm value based on value-based management model : Estimated total firm value based on value-based management model if the merger takes place: 14 million

The net present value of project : Assume cash flows occur at year-end. At a 6 percent required return. (Ignore taxes) The net present value of this project and is __________.

What is the maximum initial cost of company : What is the maximum initial cost of company would be willing to pay for the project?

What is the total amount of dividends : what is the total amount of dividends that the company must pay at the end of the current year?

Determine the target firm price per share : Based on the following information, use the market-based relative valuation approach to determine the target firm’s price per share.

Most amount of interest saved over the course of the loan : Which combination of properties will result in the most amount of interest saved over the course of the loan?

What is the maximum price per share firm : Based on the following data, what is the maximum price per share Firm A would pay to acquire Firm B in a tender offer?

User Account

All Pages