What would be the maximum initial cost

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Muller Inc. is considering a project that will result in initial after-tax cash flow of $5.5 million at the end of the first year, $5.8 million at the end of the second year, $6.0 million at the end of the third year, then the cash flow will grow at a rate of 5% per year indefinitely. Tax rate is 40%. The firm has a target debt-equity ratio of 0.5, a cost of equity of 13.5%. The company's only debt is a 5-year bond. The similar bond in the market has a yield to maturity of 12.5%. What would be the maximum initial cost if Muller would take on this project?

Reference no: EM131520995

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