Crowdly
Add to Chrome
Taber Inc. is considering a project that will result in initial after-tax cash s...
✅ The verified answer to this question is available below. Our community-reviewed solutions help you understand the material better.
Taber Inc. is considering a project that will result in initial after-tax cash savings of $2.1 million at the end of the first year, and the savings will grow at a rate of 2% per year indefinitely. The firm has a target debt-equity ratio of 0.80, a cost of equity of 11%, and an after-tax cost of debt of 4.6%. The cost-savings proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of +2% to the cost of capital for such risky projects. If the total initial cost to implement this cost-savings proposal is $23 million, what is the net present value (NPV)?
0%
100%
0%
0%
0%