Question: Your firm is considering taking on a project that will result in OCFs of $ 1 5 0 , 0 0 0 per year, forever.

Your firm is considering taking on a project that will result in OCFs of $150,000 per year, forever. Your firm has a 0.85 debt-to-equity ratio. The yield to maturity on bonds is 5%. Corporate tax rate is 30%. The current stock price is $87. The firm has paid dividends of $2.25,$2.50, and $3.55 over the last 3 years and the most recent dividend payment is $3.75. Use the geometric average growth rate to estimate the cost of equity. Since this project is riskier than usual, management will apply an adjustment factor of +2% to the cost of capital for this project. What is the maximum cost of the project for us to accept?
 Your firm is considering taking on a project that will result

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!