Problem $12-16$ WACC and NPV

Pink, Inc., is considering a project that will result in initial aftertax cash savings of $$1\mathrm{.}85$

million at the end of the first year, and these savings will grow at a rate of $3$ percent per

year indefinitely. The firm has a target debt$-$equity ratio of $\mathrm{.}85,$ a cost of equity of $12\mathrm{.}5$

percent, and an aftertax cost of debt of $5\mathrm{.}3$ 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.

What is the maximum initial cost the company would be willing to pay for the project?

$($Do not round intermediate calculations and enter your answer in dollars, not millions

of dollars, rounded to $2$ decimal places, e$.$g$,1,234,567\mathrm{.}89.)$

Answer is complete but not entirely correct.