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ABC Company has an average retained loss of $3,000 per year and they currently do not have property insurance. They are considering whether they should install a newly developed alarm system and purchase property insurance at the same time. If ABC installs the system, it will incur start-up costs in the amount of $15,000. Assume that ABC considers a five-year horizon and take straight-line depreciation for this system for tax purpose. Annual maintenance expenses of $900 are payable during the first four years, if the system is installed. With the new system installed, ABC's property insurance premium is going to be $1,200 per year and their average annual retained loss will drop to $2,400 a year. Purther assume that interest rate is 5% and the tax rate is 25%. Would it be cost effective for ABC to install the alarm system and buy property insurance? Bound to three decimal palsts whenever possible. YOU NEED TO SHOW YOUR WORK IN ORDER TO RECEIVE ANY CREDITS (8 points) 10 Year 0 1 2 3 4 5 12 13 14 15 16 17 18 1 Investment (oush outflow) Before-tex Cash inflows 2. Changes in insurance promium 3 Changes in retained losses 4 Costs of maintenance 5 Baforax nel cash infows 20 21 22 23 24 25 26 27 Tax effect Tax on net cash flow Depreciation tax shield Amar net cash inflow NPV

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