Ariana, Incorporated, is considering a project that will result in initial aftertax cash savings of $$7$ 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 $\mathrm{.}69,$ a cost of equity of $13\mathrm{.}4$

percent, and an aftertax cost of debt of $6\mathrm{.}4$ percent. 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 $+3$ percent to the cost of capital for such

risky projects.

a$.$ Calculate the required return for the project. Hint: you need to calculate the WACC. Remember my hint in earlier problem of how

to go from the debt$-$equity ratio to the weight of debt and weight of equity. Remember from class materials that you should not

use the firm's WACC for individual projects, but you should add or subtract and adjustment factor to the firm's WACC.

Note: Do not round intermediate calculations and enter your answer as a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

b$.$ What is the maximum cost the company would be willing to pay for this project? Hint: remember the Gordon Growth Model

$($Constant Growth Model$)$ to valuation. The present value $($what you are willing to pay$)=$ Cash Flow at time $1/($WACC $-$ growth

rate$).$

Note: Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$