Extracted text: 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
Extracted text: 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, and 120,000 bonds with a semiannual coupon of 4.8 percent outstanding, par value $1,000 each. The common stock currently sells for $54 per share and has a beta of 1.08, the preferred stock currently sells for $103 per share, and the bonds have 15 years to maturity and sell for 107 percent of par. The market risk premium is 7.5 percent, T-bills are 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 intermediate calculations 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 the firm's typical project, what rate should the firm use to discount the project's cash flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Debt a. Equity a. Preferred stock b. Discount rate %