I have taken out a wall in an old home with lathe and plaster wall. The existing wire is the old ungrounded wire. I want to transition this wire to a new outlet. It appears that the old wire has been stapled to the studs during installation. Any ideas on how to transition the old wire using 12-2 wire to an outlet?

My opinion would be to to pull a new home run from the panel and then rewire the entire room, if you are up to that type of work. If you have done 60% or more of renovation to the room, then you are required to bring that room up-to code. NEC 2008 code also requires that you use a AFCI on most rooms no-a-days.

However, there is an easier way, again depending on the percentage of renovation you are doing. You can replace the existing receptacle with a GFCI receptacle and notate on the new receptacle that there is no equipment ground.