It was becoming clear to ABC Corp's managers that the company's furnace was reaching the end of its useful life (a little sooner than they had hoped). There is a feasible option for an overhaul on the existing furnace, which would extend its useful life and not break the bank. Or the company could go all-in and just replace the old furnace with a more efficient model. Additional information for each option is as follows. 1. Overhaul existing furnace. Initial cost of $5,000; annual operating costs would be $12,100; expected life of 10 years with no salvage value. 2. Replace with new. Initial cost of $11,900; annual operating costs would be $9,400; under full warranty for 10 years with no expected salvage value. ABC estimates an effective tax rate of 24% and typically requires at least a 5% rate of return.

a) Calculate the NPV of the overhaul option, keeping in mind that the current book value of the existing furnace is $1,400.