The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $240,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years: UseTable 12-12.

Year 1$110,000

Year 2137,000

Year 354,000

Year 452,000

The firm is in a 30 percent tax bracket and has a cost of capital of 5 percent. UseAppendix Bfor 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.)

b.Under the net present value method, should Summit Petroleum Corporation purchase the asset?

Yes No