The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $260,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-12.

Year 1	$	116,000
Year 2		146,000
Year 3		56,000
Year 4		54,000

The firm is in a 30 percent tax bracket and has a cost of capital of 7 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

a. Calculate the net present value if the cost of capital is 8 percent.

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

multiple choice

• Yes

• No