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please help! I am stuck! will upvote! Ariana, Incorporated, is considering a project that will result in initial aftertax cash savings of $5.2 million at
please help! I am stuck! will upvote!
Ariana, Incorporated, is considering a project that will result in initial aftertax cash savings of $5.2 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 .51, a cost of equity of 13.1 percent, and an aftertax cost of debt of 6.5 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. a. Calculate the required return for the project. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16 . b. What is the maximum cost the company would be willing to pay for this project? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16Step by Step Solution
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