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The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost...

The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $200,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years

Year 1 - $ 98,000

Year 2 - $119,000

Year 3 - $50,000

Year 4 - $48,000

The firm is in a 36 percent tax bracket and has a cost of capital of 7 percent.

a. Calculate the net present value.

b. Under the net present value method, should Summit Petroleum Corporation purchase the asset? Yes OR No

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