Question # 1:

Better Tires Corp. is planning to buy a new tire making machine for $40,000 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 13% and the tax rate is 21%.

What is the NPV of this project?

Question # 2:

What is the NPV?

Intro The local franchise of Jiffy Lube is thinking of buying a new lift for $50,000 that would make it easier to access the oil filter in customers' cars and save labor. The savings would increase over the project's 3-year life, in line with the projected growth of the business: A B D 1 Year 1 2 3 2 Cost savings 90,000 99,000 118,800 The machine is to be linearly depreciated to zero and will have no resale value after 3 years. The company uses a discount rate of 11% and has a tax rate of 21%