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Better Tires Corp. is planning to buy a new tire making machine for $70,000 that would save it $20,000 per year in production costs. The
Better Tires Corp. is planning to buy a new tire making machine for $70,000 that would save it $20,000 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 16% and the tax rate is 21%. Part 1 What is the free cash flow in each year of operation (years 1 to 3)? 20700 Correct p+ decimals Cost savings Depreciation (70,000/3) EBIT Taxes (21%) Net income Depreciation FCF Part 2 What is the NPV of this project? BAttempt 1/5 for 10 pts. Years 1, 2 and 3 20,000 - 23,333 = -3,333 --700 = -2,633 +23,333 = 20,700 BAttempt 2/5 for 10 pts
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