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?

A B C D G H J 1 Input: 2 New technology: Output: Year Start 1 2 3 4 5 3 Cost 12,000,000 Cost 12,000,000 4 Life (yrs.) 5 Working capital needed 6 Yearly cost savings 7 Cost of capital 5.00 Operating: |Cost savings Book loss: sale of old tech 300,000 3,500,000 8.0% 3,500,000 Total operating After-tax operating 8 Tax rate 21.0% 9 Old technology: Working capital 5,000,000 10 Book value 300,000 11 Salvage value 1,000,000 Cash flow 12 13 NPV IRR 14 LO L