Question: Och, Inc., is considering a project that will result in initial aftertax cash savings of $1.77 million at the end of the first year, and

Och, Inc., is considering a project that will result in initial aftertax cash savings of $1.77 million at the end of the first year, and these savings will grow at a rate of 1 percent per year indefinitely. The firm has a target debtequity ratio of .75, a cost of equity of 11.7 percent, and an aftertax cost of debt of 4.5 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 +2 per cent to the cost of capital for such risky projects.

What is the maximum initial cost of company would be willing to pay for the project?(Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Och, Inc., is considering a project that will result in initial aftertax cash savings of $1.77 million at the end of the first year, and these savings will grow at a rate of 1 percent per year...

Problem 12-16 WACC and NPV Och, Inc., is considering a project that will result in initial aftertax cash savings of $1.77 million at the end of the first year, and these savings will grow at a rate...

Och, Inc., is considering a project that will result in initial aftertax cash savings of $1.77 million at the end of the first year, and these savings will grow at a rate of 1 percent per year...

WACC and NPV Och, Inc., is considering a project that will result in initial aftertax cash savings of $3.5 million at the end of the first year, and these savings will grow at a rate of 5 percent per...

Och, Inc., is considering a project that will result in initial aftertax cash savings of $3.5 million at the end of the first year, and these savings will grow at a rate of 4 percent per year...

Och, Inc., is considering a project that will result in initial aftertax cash savings of $1.73 million at the end of the first year, and these savings will grow at a rate of 3 percent per year...

Och, Inc., is considering a project that will result in initial aftertax cash savings of $1.74 million at the end of the first year, and these savings will grow at a rate of 1 percent per year...

Identify three of the common principles of internal control discussed in the chapter. Using a pharmacy as an example, give one example of how a pharmacy applies each of the three principles you have...

Nickel has an atomic radius of 0.162 nm. The edge of its cubic unit cell is 0.458 nm. What is the geometery of the nickel unit cell?

Suppose that f ( x ) is a continuous odd function with 0 4 f ( x ) d x = - 8 What is the value of the integral below? - 4 0 f ( x ) d x

Knight Company reports the following costs and expenses in May. Instructions From the information, determine the total amount of: (a) Manufacturing overhead. (b) Product costs. (c) Periodcosts....

1. Distinguish among the debt payments-to-disposable income, debt-service-to-income, debt-to-equity ratios, and continues-debt methods for setting your debt limit. 2. What are the threshold levels...

Joshua Franz earned $4600 during the summer and put $3500 of the money in a newly opened savings account for use during the school year. It is now November4th and Joshua went to the bank to withdraw...

Nick Fitzgerald holds a well-diversified portfolio of high-quality, large-cap stocks. The current value of Fitzgerald's portfolio is $735,000, but he is concerned that the market is heading for a big...

Julias six-figure salary has allowed her to build up a considerable cash reserve of over $20,000. She initially had basic checking and savings accounts. She also has a credit card with her bank that...

Tori and some other childeen experimented with balls to see which ones rolled. First using a piece of cardboard to use as a ramp, they angled it on a block to the floor to test the balls. Then Tori...

When it comes to life-saving drugs, do pharmaceutical companies have a moral obligation to make them avail able In poor countries at little or no cost? Explain why or why not. Wllat about effective...

In this case, was Nike engaged In commercial speech, or were its statements political or social speech? What determines whether speech is commercial or not?

Was the out-of-court settlement a reasonable resolu lion of this case? What would have been the good or bad consequ011ces of tile Supreme Court's deciding in Nike's favor? Of Its deciding in Kasky's...