2. A firm is considering a project that will result in initial aftertax cash savings of $5M at the end of the first year. These savings will grow at a rate of 5% per year indefinitely. The firm has a target debt-equity ratio of 0.5, a cost of equity of 29.2%, and a cost of debt of 10%. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes, and 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?

Please show all work