Ariana, Incorporated, is considering a project that will result in initial aftertax cash savings of
$5.6
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 55 , a cost of equity of 13 percent, and an aftertax cost of debt of
6.4
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
+1
percent to the cost of capital for such risky projects. a. Calculate the required return for the project. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16
. b. What is the maximum cost the company would be willing to pay for this project? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.