Question 7

XYZ is considering buying a new, high efficiency interception system. The new system would be purchased today for $49,600.00. It would be depreciated straight-line to $0 over 2 years. In 2 years, the system would be

sold for an after-tax cash flow of $13,100.00. Without the system, costs are expected to be $100,000.00 in 1 year and $100,000.00 in 2 years. With the system, costs are expected to be $76,700.00 in 1 year and $67,500.00

in 2 years. If the tax rate is 48.90% and the cost of capital is 8.70%, what is the net present value of the new interception system project?

$7915.99 (plus or minus $50)

$9226.71 (plus or minus $50)

$12129.19 (plus or minus $50)

$11337.99 (plus or minus $50)

None of the above is within $50 of the correct answer