A car manufacturer wants to replace a machine on its assembly line with a new high-tech machine. The new machine can be purchased for $1,249,000, which includes all installation costs. The production manager believes that this acquisition will decrease operating costs, excluding taxes and depreciation, from $3,450,000 to $3,320,000 each year for the first two years and from $3,320,000 to $3,118,000 each year for the last 10 years. The useful life of the new machine is 12 years, and it can be sold for $42,000 at the end of its economic life. Straight-line depreciation is used for accounting purposes. The old machine had an estimated useful life of nine years with no salvage value. The old equipment was purchased eight years ago at a cost of $850,000, and the company expects to sell it for $95,000. The company’s tax rate is 35%, and its cost of capital is 12%.

Required:

Compute the NPV, and state whether the company should buy the new high-tech machine.