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Rambler Corp is considering a cost savings initiative that is expected to yield after-tax savings of $3 million in year one. These savings are expected
- Rambler Corp is considering a cost savings initiative that is expected to yield after-tax savings of $3 million in year one. These savings are expected to grow by 2% per year indefinitely. The company has a WACC of 12%. (Although Im asking you yes/no questions, be sure to show the numbers that support your answer.)
- If the cost to implement the initiative is $35 million, should the company pursue it?
- What if the cost savings proposal is considered to be less risky than the risk of the business overall and, for less risky projects, the firm applies a subjective adjustment factor of -3% to its cost of capital. Now should the company pursue the initiative?
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