A-13 Present Value Analysis in Nonprofit Organizations

The Johnson Research Organization, a nonprofit organization that does not pay taxes, is considering buying laboratory equipment with an estimated life of 7 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)	$	6,550,000
Periodic operating cash flows:
Annual cash savings because outside laboratories
are not used		1,570,000
Additional cash outflow for people and supplies to operate
the equipment		370,000
Salvage value after seven years, which is the estimated
life of this project		570,000
Discount rate		8	%

Required:

Calculate the net present value of this decision. Should the organization buy the equipment? (Round present value factors to three decimal places. Negative amount should be indicated by a minus sign.)