1. A firm is thinking about launching a new product. The initial investment in equipment is $600,000. The project has an estimated life of five years. The revenue per year is estimated to be $400,000, and operating costs per year is estimated to be $200,000.

The investment in the net working capital will be $40,000 at the beginning of the project; 40% of this will be recovered at the end of year 4, and the rest at the end of year 5. The tax rate is 30% and the CCA rate for depreciation purposes is 20%. The equipment can be sold at the end of the project for $60,000.

There is an on-going feasibility study regarding the project. The feasibility study is done by ACDT Consulting Group. They have been paid $50,000 a year ago, and they will be paid another $50,000 today. The cost of capital for the project is 10%. Calculate the NPV of the project to see if the company should undertake this project. (12 points)

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