Kingston Kiteboards Incorporated $($KKI$)$ has been experiencing very strong demand for its

products as kite$-$boarding continues to take away market share from windsurfing. The company

is considering a new facility to manufacture an improved line of kites and another facility to

produce a new line of boards. The company estimates that the new kite facility will cost

$$1,350,000$ to construct in Year $0$ with a salvage value of $$160,000$ in Year $15.$ The board

manufacturing facility will cost $$1,700,000$ in Year $0$ with a salvage value of $$180,000$ in Year

$15.$ Combined annual revenue for the new kites and boards is expected to be $$750,000$ with

annual combined operating costs of $$270,000$ each year. Management has identified a piece of

land where both facilities could be built that could be purchased for $$550,000$ in Year $0.$ The

management team estimates that the land may be sold for the same value of $$550,000$ at the end

of Year $15.$ The company uses a discount rate of $9\%$ and a tax rate of $30\%.$ Assume that the CCA

rate of $20\%$ can be applied to the land and the manufacturing facilities.

a$.$ Use the present value tax shield approach to determine the net present value $($NPV$)$ of

combined project involving both new manufacturing facilities. Should KKI proceed with the

investment using these assumptions?

b$.$ The management team at KKI has decided to take a more conservative approach with some of

its estimates. The team feels that the facilities may only last for $13$ years and the operating costs

may amount to $$300,000$ per year. However, the company has successfully negotiated a

construction cost of $$1,200,000$ for the kite facility and $$1,400,000$ for the board facility.

$($Assume the salvage values are unchanged.$)$ Using the present value tax shield approach, what is

the total NPV with these assumptions? Should the company proceed under these revised

assumptions?