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Bono, Inc., is considering a project that will result in initial aftertax cash savings of $5.

This question was answered on Jan 11, 2013. View the Answer
Bono, Inc., is considering a project that will result in initial aftertax cash savings of $5.1 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 .50, a cost of equity of 13 percent, and an aftertax cost of debt of 6.4 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 +2 percent to the cost of capital for such risky projects.
Calculate the WACC_____%
What is the maximum cost Bono would be willing to pay for this project?
Present Value_____
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Hi Student, please find... View the full answer


By using the debt equity ratio we will calculate the WACC
WACC = (.50 /1.50) (.064) + (1/ 1.50) (.13)
= (.0213) + (.0867)
= (.108) *100
= 10.8%
Since the project is riskier than the other...

This question was asked on Jan 11, 2013 and answered on Jan 11, 2013.

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