Westonci.ca offers quick and accurate answers to your questions. Join our community and get the insights you need today. Discover precise answers to your questions from a wide range of experts on our user-friendly Q&A platform. Get quick and reliable solutions to your questions from a community of experienced experts on our platform.
Sagot :
The maximum initial cost the company would be willing to pay for the project is $25,411,061.28
Explanation:
The calculation of the is maximum initial cost as per the following:
WACC = wd * rd * we * re
weight of the debt wd = 0.85 ÷ (1+0.85) = 0.85 ÷1.85
weight of equity we = 1 ÷ 1.85
After tax cost of debt, rd = 3.8%
The cost of equity = 11%
Now;
WACC = (0.85 ÷ 1.85) * 3.8% + (1 ÷ 1.85) 11%
1.745 + 5.945 = 7.69%
The discount rate would be
WACC + adjustment factor of + 2%
= 7.69% + 2% = 9.69%
PV of future cash flow is
= After - tax cash saving ÷ (K- G)
Where after - tax cash saving = 1.7 million
K = 9.69% per year
G = 3% per year
Therefore 170,00,00 ÷(0.0969 - 0.03)
=$25,411,061.28
The PV of future income is $25,411,061.28, in this way the organization ought to take on the venture.
Learn more about future income:
https://brainly.com/question/16180102
#SPJ4
We hope our answers were helpful. Return anytime for more information and answers to any other questions you may have. Your visit means a lot to us. Don't hesitate to return for more reliable answers to any questions you may have. Thank you for choosing Westonci.ca as your information source. We look forward to your next visit.