Hankins inc is considering a project that will result in


Question: Hankins, Inc., is considering a project that will result in initial aftertax cash savings of $6.3 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. The firm has a target debt-equity ratio of .62, a cost of equity of 13.2 percent, and an aftertax cost of debt of 5.7 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.

1) Calculate the WACC.

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

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Finance Basics: Hankins inc is considering a project that will result in
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