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WACC and NPV Hankins Inc is considering a project that will result in initial aftertax cash savings of $42 million at the end of the first year and these savings will grow at a rate of

WACC and NPV. Hankins, Inc., is considering a project that will result in initial aftertax cash savings of $4.2 million at the end of the first year, and these savings will grow at a rate of 1.9 percent per year indefinitely. The firm has a target debt–equity ratio of .25, a cost of equity of 10.4 percent, and an aftertax cost of debt of 3.2 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. Under what circumstances should the company take on the project?

May 25 2020 View more View Less

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