Exercise A$-17($Algo$)$ Present Value Analysis in Nonprofit Organizations

The Minock Group, a nonprofit organization that does not pay taxes, is considering buying laboratory equipment with an estimated life of seven years so it will not have to use outsiders' laboratories for certain types of work. The following are all of the cash flows affected by the decision: Use Exhibit A$.8.$

Investment $($outflow at time $0)$

Periodic operating cash flows:

Annual cash savings because outside laboratories are not used

Additional cash outflow for people and supplies to operate the equipment

$$5,050,000$

$960,000$

$160,000$

$290,000$

Salvage value after seven years, which is the estimated life of this project

Discount rate

Required:

a$.$ Calculate the net present value of this decision.

Note: Round PV factor to $3$ decimal places. Negative amounts should be indicated by a minus sign.

b$.$ Should The Minock Group buy the equipment?

$\backslash$table$[[$a$.$ Net present value,$],[$b$.$ Should The Minock Group buy the equipment?,$]]$