General Motors (or Toyota) is thinking of investing in new production equipment, which will cost $300 million in year zero, and will generate cost savings of $180 million in year 1, $120 million in year 2, and $90 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?