XFood is a meat processing firm. So far, XFood have been using a cost of capital of
Question:
XFood is a meat processing firm. So far, XFood have been using a cost of capital of 12.5%. Recently, a group of engineers from UT developed a new technology for XFood that will enable them to cut their fixed costs by 30% every year from now on. The CFO argues that with the new technology, the cost of capital for the firm will be lower than the 12.5% that they used in the past. The treasurer, on the other hand, argues that the cost savings from the new technology will be reflected in the free cash flow estimates, and hence, making a further reduction to the cost of capital will double count the cost savings. Who is right, the CFO or the treasurer? Explain
International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr