Business, 12.08.2020 08:01 alanisalvarez2000

Och, Inc., is considering a project that will result in initial aftertax cash savings of $1.75 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 11.5 percent, and an aftertax 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 +3 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?

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Och, Inc., is considering a project that will result in initial aftertax cash savings of $1.75 milli...

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