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QUESTION
Hello!Could someone please explain to me how to solve the following two questions?
Hello!Could someone please explain to me how to solve the following two questions? I don't fully understand them.
- Scanlin, Inc., is considering a project that will result in initial after-tax cash savings of $2.1 million at the end of the first year, and these savings will grow at a rate of 2 percent per year indefinitely. The firm has a target debt−equity ratio of .8, a cost of equity of 11 percent, and an after-tax cost of debt of 4.6 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. Under what circumstances should the company take on the project?
