7. The Tumble Down D Ranch in Montana is considering investing in a new mechanized barn, which will cost $600,000. The new barn is expected to save

$90,000 in annual labor costs indefinitely (for practical purposes of computation, forever). The ranch, which is incorporated and has a public market for its stock, has a weighted average cost of capital of 14.5 percent. For this project, Howard Kelsey, the president, intends to use $200,000 in retained earnings and to finance the balance half with debt and half with a new issue of common stock. After-tax flotation costs on the debt issue amount to 2 percent of the total debt raised, whereas flotation costs on the new common stock issue come to 15 percent of the issue. What is the net present value of the project after allowance for flotation costs? Should the ranch invest in the new barn?