Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Nally, Inc., is considering a project that will result in initial aftertax cash savings of $6.1 million at the end of the first year, and

Nally, Inc., is considering a project that will result in initial aftertax cash savings of $6.1 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. The firm has a target debt-equity ratio of .60, a cost of equity of 13 percent, and an aftertax cost of debt of 5.5 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of +3 percent to the cost of capital for such risky projects.

Requirement 1:

Calculate the WACC. (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

WACC %

Requirement 2:

What is the maximum cost Nally would be willing to pay for this project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Present value $

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Contemporary Issues In Quantitative Finance

Authors: Ahmet Can Inci

1st Edition

1032101121, 978-1032101125

More Books

Students also viewed these Finance questions