AS Gourmet produces high$-$quality ready$-$made food $-$ the motto is that the food

should taste like it's homemade. The company has recently experienced strong

growth in turnover, not least after entering into distribution agreements with the

largest grocery chains in Norway.

Company management is now considering whether to rebuild parts of the factory

area so that a larger freezer room can be built. The freezer room will be located

between the production halls and the delivery hall. It will be necessary to procure an

advanced refrigeration unit, which is costed at NOK $800,000.$ The refrigeration unit

will be depreciated using the balance method by $20\%$ per year.

The establishment of a new freezer room will lead to several cost savings. Firstly, the

plant will be located close to the production halis, which will reduce production time.

In addition, the plant is more efficient than existing plants. It is therefore estimated

that electricity costs will be saved by NOK $80,000$ per year from year $1,$ and a

productivity gain of NOK $100,000$ per year $($before tax$)$ is expected from year $1.$ It is

expected that these figures will then rise in line with general inflation, which is

estimated to be $2,8\%$ per year.

It is calculated that after six years the current production premises will be too small,

and it will be necessary to move to new premises. It is expected that the refrigeration

unit will then be completely worn down and have no sales value.

The required real rate of return after tax is $7\%$ and the tax rate is $22\%.$

Give your assessment of the profitability of this project.