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Hankins, Inc is considering a project that will result in initial aftertax cash savings of $6.1...

Hankins, Inc is considering a project that will result in initial aftertax cash savings of $6.1 million at the end if ghe first yeat, and these savjngs will grow at a rate of 3 percent per year indefinitely. The firm had a target debt-equity ratio if .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 go the cost of capital for such risky projects.

WACC = 10.19%

What is the maximum cost the company would be willing to pay for this project?

Present value $______
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Answer #1

Maximum cost the company would be willing to pay for this project
=6.1/(0.6/1.6*5.5%+1/1.6*13%+3%-3%)
=59.87730061 million

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