1. The CEO of a component OEM is very aggressive in pursuing new business opportunities. One such opportunity would require the purchase of a new special - purpose machine tool set that costs $20,000. His firm is able to self-fund $10,000 of the cost but would require a $10,000 bank loan to be repaid in two equal annual installments at 10% interest compounded annually. The tool is expected to earn an annual savings of $30,000 for two years. A 3 year recovery period MACRS will be used for depreciation. The annual O&M costs are expected to be $5,000. The salvage value at the end of two years is estimated to be $8,000. He developed the following table of information before he was distracted by another urgent problem. Operating Activities $10,400 $12,019 Depreciation $6,666 $4,445 Investment Activities Year 1 Year 2 0 Net Income $20,000 Investment Salvage Gains Tax 40% $8,000 Financial Activities Borrowed Funds Principal Repayment $10,000 $0 Net Cash Flow $10,000 He asked his assistant manager (you) to determine what is the net present worth of this project assuming a marginal tax rate of 40% and a MARR of 15%