RSM332H1 Lecture Notes - Net Present Value
Document Summary
Scanlin, inc. , is considering a project that will result in initial after tax cash savings of . 7 million at the end of the first year, and these savings will grow at a rate of 4 percent per year indefinitely. The firm has a target debt-equity ratio of 0. 90, a cost of equity of 13 percent, and an after tax cost of debt of 4. 8 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.
