Go-Poly Inc. has annual sales of $150 million with an expected profit of $5 million. It currently has a retention limit for annual liability losses equal to $5 million. The premium for excess insurance coverage above the $5 million retentions is $50,000. With the $5 million retentions, its expected retained losses (including claims settlement costs) for accidents during the year equal $1 million. Half of all retained losses for accidents during the year will be paid at the end of the year; the remaining half will be paid at the end of the next year. If Go-Poly Inc. changes its retention level to $2 million, the premium for excess coverage will be $170,000. Its expected retained losses for accidents during the year will drop to $900,000. Again, half of the retained losses for accidents during the year will be paid at the end of the year; the remaining half will be paid at the end of the second year. Premiums are paid at the beginning of the year. Go-Polys opportunity cost of capital for this decision is 10 per cent. The tax rate is 34 per cent. The decision horizon is one year of coverage because the firm can change its retention level again the following year. Note, however, that cash flows associated with the decision occur over two years. Calculate the present value of the after-tax change in expected net cash flows from reducing Go-Polys retention level from $5 million to $2 million. (15 points)