WACC, risk, upper limit of the initial investment?

Z is considering a project that will result in initial after tax cash savings of $4 million at the end of the first year, and these savings will grow at a rate of 5 percent per year indefinitely. The WACC is 11.71%. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment of +2 percent to the cost of capital for such risky projects.
What is the upper limit of the initial investment for Z to take on the project?

You just need to figure out what the present value of the project is, discounted back at WACC +2%. That's as much as you should be willing to spend.

Present Value = 4,000,000 / (13.71%-5%)
=45,924,225

That is the upper limit. Spend any more and you have a negative NPV.

I don't think there is a mathematical way of calculating this. You would have to make a subjective judgement based on the probability of success.

My gutfeeling is that 2% in general is a lot. The value of a project would decrease by roughly 15% if you increase WACC by 2%-point:
10 / 0,11 = 90,9
10 / 0,13 = 76,9

100% - 76,9/ 90,9 = 15%

High value of the stock