KTI Inc. is considering a project that would have a five-year life and require a $500,000 investment in equipment. The project will release working capital of $45,000 at the beginning of the project. At the end of five years, the project would terminate, the equipment would have a $50,000 residual value and the working capital will be increased by $25,000. The project would provide net income each year as follows: Sales $750,000 Less: Variable Expenses $450,000 Contribution Margin $300,000 Less: Fixed Expenses $180,000 Net Income $120,000

a) Calculate the projects net present value.

b) Conclude on whether the project should be undertaken with support.

KTI Inc. is considering a project that would have a five-year life and require a $500,000 investment in equipment. The project will release working capital of $45,000 at the beginning of the project. At the end of five years, the project would terminate, the equipment would have a $50,000 residual value and the working capital will be increased by $25,000. The project would provide net income each year as follows: Sales $750,000 Less: Variable Expenses $450,000 Contribution Margin $300,000 Less: Fixed Expenses $180,000 Net Income $120,000 Depreciation is included in the fixed expenses. KTl's required rate of return is 12%