Question
3. KKF Inc. is considering a 3-year project with an initial cost of $755,000. The project will not directly produce any sales but will reduce
3. KKF Inc. is considering a 3-year project with an initial cost of $755,000. The project will not directly produce any sales but will reduce operating costs by $195,000 a year. The equipment is depreciated straight-line to a zero book value over the life of the project. At the end of the project, the equipment will be sold for an estimated $42,000. The tax rate is 30%. The project will require $28,000 in extra inventory for spare parts and accessories. Calculate the NPV. Should this project be implemented if KKF requires a 10% rate of return? Why or why not? (4 marks)
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