Question: Your firm is considering taking on a project that will result in aftertax cash savings of $ 1 5 0 , 0 0 0 per

Your firm is considering taking on a project that will result in aftertax cash savings of $150,000 per year for the next 5 years. 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 $47. The firm has paid dividends of $2, $2.50, and $3 over the last 3 years and the most recent dividend payment is $4. Use the arithmetic average growth rate to estimate the cost of equity. Since this project is riskier than usual, management will apply an adjustment factor of +3% to the cost of capital for this project. What is the maximum cost of the project for us to accept?

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