MrXavier Has an HO-2 Contract with $100,000 Dwelling Coverage,$50,000 Personal

Mr.Xavier has an HO-2 contract with $100,000 dwelling coverage,$50,000 personal property coverage,and a $500 deductible. The dwelling is 50% depreciated. Sewage backs up into the basement and destroys the furnace,which will cost $8,000 to replace. The policy will pay:

A) nothing because of the water damage exclusion
B) nothing because the property is not covered
C) $7,500 because of replacement cost coverage
D) $3,500 because of actual cash value and the deductible