In class Exam 'This Week in Palestine' magazine has asked you to analyze an investment proposal that it has received. This proposal relates to This Week in Palestine producing a CD-ROM version that will contain the text of all of the articles published in the magazine since its inception. You have also been given the following information from the proposal: 1. The firm has already completed market testing that suggests that there is a market for this product. This market testing cost $5 million, which will be capitalized and depreciated straight line over 4 years. 2. This week in Palestine will have to invest $25 million in new computers, CD-ROM drives and other equipment. This equipment will have a life of 4 years, at the end of which period it is estimated to have a value of $5 million. 3. During the 4-year period, the equipment will be depreciated straight line down to its salvage value of $5 million. 4. It is anticipated that 300,000 CD-ROMs will be sold next year and there will be a 2% growth for the remaining years. The price is $50 per CD-ROM. The cost of producing and packaging each CD is $10. 5. There will be 10 full time employees and the payroll (and other associated costs) for these employees is expected to be $2 million a year, for the next 4 years. 6. The firm will have to maintain an inventory of 10% of revenues. This investment will have to be made at the beginning of the year, and can be entirely salvaged at the end of the four years. 7. The total annual advertising budget for This Week in Palestine which is currently $25 million, is expected to increase to $27.5 million as a consequence of this new product. The firm is planning to allocate 5% of this total expense to this project each year for the next 4 years. 8. The firm has a tax rate of 20%. 9. This Week in Palestine cost of capital is 10%. a. Estimate the free cash flow to firm from taking this project. b. Estimate the net present value of this project.