IMB Inc., whose tax rate = 30%, is considering a 22-year project which requires an initial cash outlay of $920,000, and has annual cash flows of $93,000. 90-Day T-bills and 30-year government bonds are currently paying 2% and 4.5%, respectively. Should IMB Inc. undertake this project assuming the opportunity cost of capital = 12% (*assume the following: CCA = 25% and the salvage value = $250,000).
Does your answer change if the risk of the project is over-estimated, and the discount rate is subsequently adjusted by 1.25%?