Sommer, Inc., is considering a project that will result in initial after tax cash savings of $1.83 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 .80, a cost of equity of 12.3 percent, and an aftertax cost of debt of 5.1 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 1 percent to the cost of capital for such risky projects. What is the maximum initial cost the company would be willing to pay for the project
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Sommer, Inc., is considering a project that will result in initial after tax cash savings of $1.83 m...
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