Lebleu, Incorporated, is considering a project that will result in initial aftertax cashsavings of $2.9 million at the end of the first year, and these savings will grow at a rate of2 percent per year indefinitely. The firm has a target debt-equity ratio of .75, a cost ofequity of 10 percent, and an aftertax cost of debt of 4.6 percent. The cost-savingproposal is somewhat riskier than the usual project the firm undertakes; managementuses the subjective approach and applies an adjustment factor of +3 percent to the costof capital for such risky projects.What is the maximum inital cost the company would be willing to pay for the project? (Donot round intermediate calculations and and enter your answer in dollars, not millionsof dollars, rounded to the nearest whole number, e.g., 1,234,567.)Maximum cost Lingenburger Cheese Corporation has 6.4 million shares of common stock outstanding,200,000 shares of 3.8 percent preferred stock outstanding, par value of $100, and120,000 bonds with a semiannual coupon of 4.8 percent outstanding, par value $1,000each. The common stock currently sells for $54 per share and has a beta of 1.08, thepreferred stock currently sells for $103 per share, and the bonds have 15 years tomaturity and sell for 107 percent of par. The market risk premium is 7.5 percent, T-billsare yielding 2.4 percent, and the company's tax rate is 22 percent.a. What is the firm's market value capital structure? (Do not round intermediatecalculations and round your answers to 4 decimal places, e.g., .1616.)b. If the company is evaluating a new investment project that has the same risk as thefirm's typical project, what rate should the firm use to discount the project's cashflows? (Do not round intermediate calculations and enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)a. Debta. Equitya. Preferred stockb. Discount rate%

Lebleu, Incorporated, is considering a project that will result in initial aftertax cash savings of $2.9 million at the end of the first year, and these savings will grow at a rate of 2 percent per year indefinitely. The firm has a target debt-equity ratio of .75, a cost of equity of 10 percent, and an aftertax cost of debt of 4.6 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 +3 percent to the cost of capital for such risky projects. What is the maximum inital cost the company would be willing to pay for the project? (Do not round intermediate calculations and and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) Maximum cost

Lebleu, Incorporated, is considering a project that will result in initial aftertax cash savings of $2.9 million at the end of the first year, and these savings will grow at a rate of 2 percent per year indefinitely. The firm has a target debt-equity ratio of .75, a cost of equity of 10 percent, and an aftertax cost of debt of 4.6 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 +3 percent to the cost of capital for such risky projects. What is the maximum inital cost the company would be willing to pay for the project? (Do not round intermediate calculations and and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) Maximum cost

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 15P

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