16. WACC and NPV Och, Inc., is considering a project that will result in initial aftertax cash savings of $1.85 million at the end of thefirst year, and these savings will grow at a rate of 3 percent per year indefinitely. The company has a target debt-equity ratio of .65, acost of equity of 11 percent, and an aftertax cost of debt of 4.3. percent. The cost-saving proposal is somewhat riskier than the usualprojects the firm undertakes; management uses the subjective approach and applies an adjustment factor of +2 percent to the cost ofcapital for such risky projects. Under what circumstances should the company take on the project?

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Answered: 16. WACC and NPV Och, Inc., is…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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