2. Digital compression uses computer techniques to squeeze 3 to 10 programs into a single channel. A cable system fully using digital compression technology would be able to offer well over 100 channels, compared with about 35 for the traditional cable television system. If the new technology is combined with the increased use of optical fibers, it might be possible to offer as many as 300 channels A cable company is considering installing this new technology to increase subscription sales and save on satellite time. The company estimates that the installation will take place over two years The system is expected to have an eight-year service life and produce the following savings and expenditures Digital Compression Investment Now First year Second year Annual savings Incremental annual revenues due to new subscriptions $1,500,000 Incremental annual expenses Incremental annual income taxes Economic service life Net salvage value S500,000 1,000,000 1,500,000 S1,000,000 S250,000 $1,000,000 8 years 250,000 Thus, the total project life is 10 years. Ifthe firm's MARR is 20%, use the NPV method to Justify the economic worth of the project