Sallinger, Inc., is considering a project that will result in initial aftertax cash savings of $4 million
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Sallinger, Inc., is considering a project that will result in initial aftertax cash savings of $4 million at the end of the first year, and these savings will grow at a rate of 5 percent per year indefinitely. The firm has a target debt-equity ratio of .75, a cost of equity of 16 percent, and an aftertax cost of debt of 6 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 +2 percent to the cost of capital for such risky projects. Under what circumstances should Sallinger take on the project?
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Fundamentals Of Corporate Finance
ISBN: 9780072553079
6th Edition
Authors: Stephen A. Ross, Randolph Westerfield, Bradford D. Jordan
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