2. New Corp. is considering investing $10 million in equipment that is expected to have a useful life of four years and is expected to reduce the firms labor costs by $4 million per year. The firm uses straight-line depreciation, assumes the machine will have no salvage value, and has a tax rate of 20%.

a. What is the annual after-tax cash flow from the investment?

b. If the cost of capital is 15%, should New Corp. invest in the new equipment?