Review the data provided in Exercise 9.1.

Data From Exercise 9.1:

Metro Industries is considering the purchase of new equipment costing $1,500,000 to replace existing equipment that will be sold for $150,000. The new equipment is expected to have a $220,000 salvage value at the end of its five-year life. During the period of its use, the equipment will allow the company to produce and sell an additional 20,000 units annually at a sales price of $40 per unit. Those units will have a variable cost of $22 per unit. The company will also incur an additional $80,000 in annual fixed costs.

Required

a. Calculate the net present value of the proposed equipment purchase. Assume that Metro uses a 10% discount rate.

b. Do you recommend that Metro Industries invest in the new equipment? Why or why not?