The Johnson Research Organization, 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:
Investment (outflow at time 0) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,000,000
Periodic operating cash flows:
Annual cash savings because outside laboratories
are not used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400,000
Additional cash outflow for people and supplies to operate
the equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
Salvage value after seven years, which is the estimated
life of this project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10%

Required
Calculate the net present value of this decision. (Refer to Exhibit A.2 in formatting your answer.) Should the organization buy the equipment?