Scanlin, Inc., is considering a project that will result in initial after tax cash savings of $1.8 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 .80, a cost of equity of 12 percent, and an after tax cost of debt of 4.8 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 12 percent to the cost of capital for such risky projects. Under what circumstances should the company take on the project?
Answer to relevant QuestionsLorre, Inc., recently issued new securities to finance a new TV show. The project cost $14 million, and the company paid $725,000 in flotation costs. In addition, the equity issued had a flotation cost of 7 percent of the ...Why is underpricing not a great concern with bond offerings?Use the following information to answer the next three questions. Zipcar, the car sharing company, went public in April 2011. Assisted by the investment bank ...The Raven Co. has just gone public. Under a firm commitment agreement, Raven received $17.67 for each of the 15 million shares sold. The initial offering price was $19 per share, and the stock rose to $23.18 per share in the ...Pendergast, Inc., has no debt outstanding and a total market value of $180,000. Earnings before interest and taxes, EBIT, are projected to be $23,000 if economic conditions are normal. If there is strong expansion in the ...Tool Manufacturing has an expected EBIT of $73,000 in perpetuity and a tax rate of 35 percent. The firm has $145,000 in outstanding debt at an interest rate of 7.25 percent, and its unlevered cost of capital is 11 percent. ...
Post your question