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Problem 12-21 WACC and NPV [LO 4] Hankins, Inc., is considering a project that will...

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Finance

Problem 12-21 WACC and NPV [LO 4]

Hankins, Inc., is considering a project that will result in initial aftertax cash savings of $6.2 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 debtequity ratio of .61, a cost of equity of 13.1 percent, and an aftertax cost of debt of 5.6 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 +1 percent to the cost of capital for such risky projects. Calculate the WACC. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC % What is the maximum cost the company would be willing to pay for this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value $

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