Question
In: Finance
KFA is considering investing in a new drone technology costing $12 million. It has a 5...
KFA is considering investing in a new drone technology costing $12 million. It has a 5 year life (no salvage value) and will save KFA $3.5 million/year in pre-tax operating costs. It will need an up-front working capital investment of $300,000. KFA's cost of capital is 8.0% and its tax rate is 21.0%. Their current technology has a $5 million book value but a $1 million salvage value. What are the NPV and IRR of the decision to replace the old technology?
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Expert Solution
Please refer to below spreadsheet for calculation and answer. Cell reference also provided.
Cell reference -
Hope this will help, please do comment if you need any further explanation. Your feedback would be appreciated.
jeff jeffy answered 3 months agoRelated Solutions
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(5) year life, and the old technology has three (3) years left in
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is considering an investment in a new technology for a drone
project with a price of $16 million. Their current technology has a
book value of $5 million and a market value of $5 million. The new
technology is expected to have a five (5) year life, and the old
technology has three (3) years left in which it can be expected to
be used. If the firm replaces the old technology with the new
technology it...
King Fisher Aviation is considering an investment in a new technology for a drone project with...
King Fisher Aviation is considering an investment in a new
technology for a drone project with a price of $16 million. Their
current technology has a book value of $5 million and a market
value of $5 million. The new technology is expected to have a five
(5) year life, and the old technology has three (3) years left in
which it can be expected to be used. If the firm replaces the old
technology with the new technology it...
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