Question No 27 (12 points) A firm is thinking about launching a new product. The initial investment in equipment is $500,000. The project has an estimated life of four years. The revenue per year is estimated to be $350.000, and operating costs per year is estimated to be $200,000. The investment in the net working capital will be $50,000 at the beginning of the project. It is expected that 50% of this investment in net working capital will be recovered at the end of year 3, and the rest at the end of year 4. The tax rate is 35% and the CCA rate for depreciation purposes is 30%. The equipment can be sold at the end of the project for $50,000. The company feels that the risk of the project is higher than the risk of its existing operations. Therefore, it has decided to use a required rate of return (discount rate) for the project that is 2% higher than the firm's cost of capital. Currently, the before tax cost of debt of the firm is 6%, its cost of common equity is 10%, and its cost of preferred equity is 8%. The capital structure of the firm based on market values indicate that assets are financed by 40% of common equity, 20% of preferred equity and 40% of debt. Calculate the NPV of the project to see if the company should undertake this project. ***You must show your work to get credit (you can use both sides of the page to show your work)