Question

10)The Summitt Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $280,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-12.
    Year 1$139,000  Year 2 182,000  Year 3 64,000  Year 4 62,000  
 The firm is in a 35 percent tax bracket and has a cost of capital of 12 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
 a.Calculate the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)
   Net present value$   
 b.Under the net present value method, should Summitt Petroleum Corporation purchase the asset?   YesNo

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