An energy conservation project is being evaluated. Four levels of performance are considered feasible. The estimated probabilities of each performance level and the estimated before-tax cost savings in the first year are shown in the following table:

Assume the following:
€¢ Initial capital investment: $100,000 [80% is depreciable property and the rest (20%) are costs that can be immediately expensed for tax purposes].
€¢ The ADS under MACRS is being used. The ADS recovery period is four years.
€¢ The before-tax cost savings are estimated to increase 6% per year after the first year.
€¢ MARRAT = 12% per year; the analysis period is five years; MV5 = 0.
€¢ The effective income tax rate is 40%.
Based on E(PW) and after-tax analysis, should the project be implemented?

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Performance Level (L)L)1st yr; before taxes) Cost Savings 0.15 0.25 0.35 0.25 22,500 35,000 44,200 59,800 2