CU corp. is considering a project that will result in initial after tax cash saving of $2.7
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Question:
CU corp. is considering a project that will result in initial after tax cash saving of $2.7 million at the end of the first year, and these savings will grow at a rate of 4 percent per year indefinitely. CU corp. has a target debt-equity ratio of 0.9, a cost of equity of 13%, and an after tax cost of debt of 4.8%.As the project is considered to be riskier than the firm's existing projects, the management uses the subjective approach to add 2% to the cost of capital for the project under consideration. Calculate the NPV of the project if the project will cost $40million of initial investment?
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