3) A company XYZ is considering a project which would result in an initial cash savings of $3.5 million at the end of the first year, and the savings will grow at the rate of 4 % per year, forever. The company has a target debt equity ratio of 0.55, the cost of equity is 13%, and the cost of debt is 5.5%.

The cost saving proposal is riskier than the usual projects, so the firm uses an adjustment factor of +2% to the cost of capital for such risky projects.

Under what circumstances should the firm take the project? (What is the maximum initial investment that makes this profitable)