4. The Antelope Elk Energy Center in Abernathy, Texas, a natural gas power generation plant, is considering an upgrade to its fuel distribution system. The upgrade is expected to increase fuel efficiency thus decrease natural gas consumption to create a savings of $6.5 million per year over a 15-year period. Accounts receivable is expected to increase by 5%, inventory is anticipated to decrease by 20%, and accounts payable to decrease by 10%. MasTech, a leading power generation construction company, estimated the upgrade cost to the fuel distribution system will be $28 million. Use Excel.

1. (10 points) The companys marginal tax rate is 35% and uses straight-line depreciation. What is the projects cash flow in year (t=1)? (10 points)

2. (10 points) The companys cost of capital is 8.0%. Calculate the Net Present Value and determine if the Antelope Elk Energy Center should go forward with the project. Why or why not? Use Excel spreadsheet to calculate.

Year	0
Accounts Receivable	2,250,000
Inventory	1,500,000
Accounts Payable	1,200,000