WBS Corp is a printing company that is considering an investment in a new textbook that uses high-quality paper. The marketing team expects that the textbook will remain in print for 5 years at which point its contents will become obsolete. Market research, which cost the firm $120,000, indicates that 5,000 copies will be sold next year and the figures for the subsequent years are 8,000, 12,000, 10,000, and 6,000. The textbook will be initially priced at $20. The price is expected to rise by 2% a year whilst the inflation rate remains unchanged at 5%. To print on high-quality paper, the company needs a new machine that costs $100,000. The machine depreciates by 25% of its value per year. The machine is expected to be sold for $30,000 at the end of the project. The machine will operate in a vacant warehouse owned by the firm that can be sold for $150,000 after taxes. The incremental corporate tax for this project is 28%. A single copy of the textbook will cost $10 to print in the first year. The price of high-quality paper is expected to grow 10% per year, and the firm expects that the costs of production will grow in parallel. To run this project, the firm needs an immediate amount of $10,000 in cash and inventory. Additional working capital of $6,320 and $8,650 are required at the end of year 2 and year 3, respectively. The working capital goes down to $21,220 at the end of year 4 and will be completely recovered when the project ends.

(assume that the printing equipment will be sold by the last day of year 5. Also, please assume that the cost of capital won't be affected by the inflation rate.)

1. Estimate the projects free cash flows.

2. Should the company proceed with the investment if its cost of capital is 10%?