(a)TheCaryCompanyisconsideringanewinvestmentthatcosts$10,000. It will last five years and has no salvage value.

The project would save $3,000 in salaries and wages each year and would be financed with a loan with interest costs of 15% per year and amortization costs (repayment of principal on the loan) of $2,000 per year.

1. (i)If the firm's tax rate is 40% and its after- tax cost of capital is 20%, what is the net present value of the project? (Note: The annuity factor for five years at 20% is 2.991.)
2. (ii)Briefly explain the concepts of cost of capital, cost of debt and cost of equity.
3. (15)
4. (b)List and explain four essential properties of the best capital budget- ing technique.
5. Pick one capital budgeting technique that we discussed in class (Pay- back Method, Accounting Rate of Return, Internal Rate of Return and Net Present Value) and provide an intuitive explanation of it.