20. WACC and NPV [LO3, 5] Scanlin, Inc., is considering a project that will result in initial aftertax cash savings of $1.8 million at the end of the first year, and these savings will grow at a rate of 2 percent per year indefinitely. The firm has a target debt–equity ratio of .80, a cost of equity of 12 percent, and an aftertax cost of debt of 4.8 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an ad- justment factor of 12 percent to the cost of capital for such risky projects. Under what circumstances should the company take on the project?
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