Cash flows.
The Cary Company is considering a new investment that costs $10,000. It will last five years and have no salvage value. The project would save $3000 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 $2000 per year.
If the firms 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.]