Question 30

Oxygen Optimization is considering buying a new purification system. The new system would be purchased today for 19,600 dollars. It would be depreciated straight-line to 1,200 dollars over 2 years. In 2 years, the system would be sold and the after-tax cash flow from capital spending in year 2 would be 2,200 dollars. The system is expected to reduce costs by 8,200 dollars in year 1 and by 13,700 dollars in year 2. If the tax rate is 50 percent and the cost of capital is 9.67 percent, what is the net present value of the new purification system project?