<span>The tax rate on $160,500 is 25%. So you will have to convert 25% to a decimal which is .25. You then take .25 and multiply it by 160500. The answer is 40125, then you subtract that by 160500 and get 120375. That is her taxable income and liability.</span>
Answer:
22.14 billion
Explanation:
First, we will calculate the WACC where,
- WACC = we x ke + wd x kd x (1 - tax)
-
And Weight of Equity = E/(D+E) = 1 / 1.85 = 54%
- The weight of debt = 1 - 54% = 46%
-
The cost of equity = 12.8%
- the cost of debt = 5.6%
- WACC = 54% * 12.8% + 46% x 5.6% = 9.49%
The WACC for the project will be 9.49 + 2 = 11.49% as the project is riskier.
As the after tax cash savings are expected to grow at a constant rate indefinitely, it is a perpetuity,
V of perpetuity = 1.88m / (11.49% - 3%) =$22.14
This (22.14) is the maximum that the company can invest as initial cost as at this initial investment, the present value of the project will be zero.
