Question
General Motors (or Toyota) is thinking of investing in new production equipment, which will cost $600 million in year zero, and will generate cost savings
General Motors (or Toyota) is thinking of investing in new production equipment, which will cost $600 million in year zero, and will generate cost savings of $360 million in year 1, $240 million in year 2, and $180 million in year 3. After 3 years, the salvage value is zero. The cost of capital (discount rate) is 25% for General Motors and 10% for Toyota. (Due to GM's recent bankruptcy, investors are scared to lend it money, so GM has to pay much higher interest rates to attract capital).
Required:
a) What's the NPV of this project for General Motors?
NPV = $
Incorrect: Your answer is incorrect. million (If you get say $3.52 million, enter 3.52 not 3,520,000. If you get a negative number, enter it with a minus sign, i.e., -3.52 not (3.52))
b) What's the NPV of this project for Toyota?
NPV = $
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