Question: ABC, Inc., is considering a project that will result in initial after-tax cash savings of $1.85 million at the end of the first year, and

ABC, Inc., is considering a project that will result in initial after-tax cash savings of $1.85 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. The company has a target debt-equity ratio of 0.65 , a cost of equity of 11 percent, and an after-tax cost of debt of 4.3 percent. The cost saving proposal is somewhat riskier than the usual projects the firm undertakes; management uses the subjective approach and applies an adjustment factor of +2 percent to the cost of capital for such risky projects. Under what circumstances should the company take on the project

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