Question: Q1. ABC Ltd. is considering a project that will result in initial after-tax cash savings of $3.7 million at the end of the first year,

Q1. ABC Ltd. is considering a project that will result in initial after-tax cash savings of $3.7 million at the end of the first year, and these savings will grow at a 1.3 per cent per year indefinitely. The firm has a target debt-to-equity ratio of 0.50, a cost of equity of 8 per cent and an after-tax cost of debt of 6.4 per cent. The cost of saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of +5 per cent to the cos of capital for such risky projects. Calculate the WACC and the projects discount rate, determine the present value of future cash flows and should the project be accepted? Why

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