Morales Company is planning to invest in high-tech equipment costing $580,000, which has a useful life of 6 years and a $40,000 salvage value. The investment is expected to produce net cash (after taxes) operating savings of $120,000 per year. A repair of $10,000 is anticipated at the end of 2 years. The corporate salaries are $55,000. The company uses straight-line depreciation. The desired rate of return is 10%.

a. What is the net present value if the cost of capital is 10%?

b. Should the machine be purchased?