Suppose a company has the opportunity to bring out a new product, the Vitamin-Burger. The initial cost of

the assets is $100 million, and the company's working capital would increase by $10 million during the life

of the new product. The new product is estimated to have a useful life of four years, at which time the assets

would be sold for $5 million. Management expects company sales to increase by $120 million the first year,

$160 million the second year, $140 million the third year, and then trailing to $50 million by the fourth year

because competitors have fully launched competitive products. Operating expenses are expected to be 65%

of sales, the asset is depreciated using straight-line method.

The Company raised $30 million in debt with a 9% before-tax interest rate, and $10 million in preferred

equity (preferred share), and $60 million in common equity (common share) to financing this investment.

The preferred equity has a dividend of $1.25 per share and currently sell at $20 per share. Suppose that the

Company has a current dividend of $2 per share. The current price of a share of the Company stock is $40.

The Company has a dividend payout of 20% and an expected return on equity of 12%. The company's tax

rate is 35%.

Required: Should the company invest in this new product? Why and Why not?