1. Och, Inc, is considering a project that will result an aftertax cash savings of $3.5 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 0.55, a cost of equity of 12.4 percent and an aftertax cost of debt of 4.9 percent. The cost-saving proposal is riskier than the usual projects the firm undertakes; management uses the subjective approach and applies an adjustment factor +2 percent to the cost of capital for such risky projects. Under what circumstances should the firm take on the project?