Question: Bono, Inc. is considering a project that will result in initial after tax cash savings of $5.1 million at the end of the first year,

Bono, Inc. is considering a project that will result in initial after tax cash savings of $5.1 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. The firm has a target debt-equity ratio of .50, a cost of equity of 13 percent, and an after tax cost of debt of 6.4 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.

Calculate the WACC_____%

What is the maximum cost Bono would be willing to pay for this project?

Present Value_____

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By using the debt equity ratio we will calculate the WACC WACC 50 150 064 1 150 13 0213 086... View full answer

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