Snoqualmie Inc. manufactures snowsuits. Snoqualmie is considering purchasing a new sewing machine at a cost of $2,500,000. Its existing machine was purchased five years ago at a price of $1,800,000, and the company spent $55,000 six months ago to maintain it in operation. The existing sewing machine can be sold today for $260,000. The new sewing machine would require a one-time $85,000 training cost. Operating costs would decrease by the following amounts for years 1 to 7:

Year 1...........................................$390,000
Year 2.............................................400,000
Year 3.............................................411,000
Year 4.............................................426,000
Year 5.............................................434,000
Year 6.............................................435,000
Year 7.............................................436,000

The new sewing machine would be depreciated according to the declining balance method at a rate of 20%. The salvage value is expected to be $380,000. This new equipment would require maintenance costs of $95,000 at the end of the fifth year. The tax rate is 40%, the after-tax cost of capital is 9%, and the CCA is 20%.

Required:

Use the NPV method to determine whether Snoqualmie should purchase the new machine to replace the existing machine, and state the reason for your conclusion. Ignore the tax effects from disposal of old machine.