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KFA is considering investing in a new drone technology costing $12 million. It has a 5...

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Finance

KFA is considering investing in a new drone technology costing$12 million. It has a 5 year life (no salvage value) and will saveKFA $3.5 million/year in pre-tax operating costs. It will need anup-front working capital investment of $300,000. KFA's cost ofcapital is 8.0% and its tax rate is 21.0%. Their current technologyhas a $5 million book value but a $1 million salvage value. Whatare the NPV and IRR of the decision to replace the oldtechnology?

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