Result an initial aftertax cash savings

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Scanlin, Inc., is considering a project that will result an initial aftertax cash savings of $2.1 million at the end of the first year, and these savings will grow at a rate of 2% per year indefinitely. The firm has a target debt-equity ratio of .80, a cost of equity is 11%, and an aftertax cost of debt of 4.6%. 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% to the cost of capital for such risky projects. Under what circumstances should the company take on the project?

Reference no: EM13985601

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