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  • Scanlin, 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 these savings will grow at a rate of 2 percent per year indefinitely. The firm has a target debt-equity ratio of .8, a cost of equity of 11 percent, and an after-tax 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. Under what circumstances should the company take on the project?
  • Ward Corp. is expected to have an EBIT of $1.9 million next year. Depreciation, the increase in net working capital, and capital spending are expected to be $165,000, $85,000, and $115,000, respectively. All are expected to grow at 18 percent per year for four years. The company currently has $13 million in debt and 800,000 shares outstanding. After year 5, the adjusted cash flow from assets is expected to grow at 3 percent indefinitely. The company's WACC is 8.5 percent and the tax rate is 35 percent. What is the price per share of the company's stock? 

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