Case Study-Henley Construction Company Henley Construction Company is considering a plan to replace the automated alarm system at its storage site. The risk management professional is preparing a net present value analysis of the cost and benefits of the investment. He has gathered the following financial information: The new automated alarm system would cost $120,000, have a useful life of 5 years, and incur $10,000 per year in additional operating and maintenance costs The efficiency of the new alarm system is expected to save an average of $30,000 in loss costs and would qualify for an insurance premium reduction of $17,000 per year The new equipment would be depreciated over five years using the straight-line method The required rate of return on this type of investment is 10 percent The effective tax rate is 40 percent The risk management professional prepared a table showing the present value of an annuity of $1 at various interest rates and time periods. Complete the calculation worksheet from the information provided. Cost of replacement automated alarm system Benefit of replacement alarm system: Annual insurance premium savings Reduction in expected loss costs III Additional maintenance expenses Before-tax Net Cash Flow Income tax effects: Before-tax Net Cash Flow Annual depreciation expenses Annual increase in taxable income Annual additional taxes @ 40% After-tax Net Cash Flow Net Present Value Calculations: Present Value of NCFS (5 years @ 10%) Initial Investment Net Present Value (NPV)