Metro Industries is considering the purchase of new equipment costing $336,000 to replace existing equipment that will be sold for $50,400. The new equipment is expected to have a $56,000 salvage value at the end of its 1-year life. During the period of its use, the equipment will allow the company to produce and sell an additional 8,400 units annually at a sales price of $6 per unit. Those units will have a variable cost of $3 per unit. The company will also incur an additional $25,200 in annual fixed costs.

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(a) Calculate the net present value of the proposed equipment purchase. Assume that Metro uses a 3% discount rate.

(For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971. Enter negative amount using a negative sign preceding the number for e.g. -59,991 or parentheses e.g. (59,991).)

Net present value $ ___________________

(b) Do you recommend that Metro Industries invest in the new equipment?

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