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Better Tires Corp. is planning to buy a new tire making machine for $80,000 that would save it $80,000 per year in production costs. The

Better Tires Corp. is planning to buy a new tire making machine for $80,000 that would save it $80,000 per year in production costs. The savings would be constant over the project's 3-year life. The machine is to be linearly depreciated to zero and will have no resale value after 3 years.

The appropriate cost of capital for this project is 11% and the tax rate is 21%.

a.What is the free cash flow in each year of operation (years 1 to 3)?

b.What is the NPV of this project?

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