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DUD Inc. is trying to determine how much they should pay for a project that will result in significant cost savings annually. The firm has
DUD Inc. is trying to determine how much they should pay for a project that will result in significant cost savings annually. The
firm has a target debt to equity ratio of and an aftertax cost of debt of A share of DUD is currently trading at
$
The project will result in an initial aftertax cash savings of $ million at the end of the first year, and these savings will grow
at a rate of per year indefinitely. Dividends paid by the company for the last years are given in the table below; the
most recent dividend received by the common shareholders was $ in Historical growth rates are expected to
continue in the future.
Year Dividend
a Calculate the cost of equity for the company
b Calculate the capital structure weights for the company
c Calculate the WACC for the company
d Calculate the maximum amount DUD Inc. should pay for the project Ignore CCA and flotation costs
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