Required information

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VacuTech is a high$-$technology company that manufactures sophisticated instruments for testing microcircuits. Each

instrument sells for $$4,500$; variable manufacturing cost per unit $($all cash$)$ equals $$2,950.$ An essential component of the

company's manufacturing process is a sealed vacuum chamber where the interior approaches a pure vacuum. The

technology of the vacuum pumps that the firm uses to prepare its chamber for sealing has been changing rapidly. On June

$1,2015,$ VacuTech bought the latest in electronic high$-$speed vacuum pumps that can evacuate a chamber for sealing in

only $6$ hours. The company paid $$500,000$ for the pump. Recently, the pump's manufacturer approached VacuTech with a

new pump that would reduce the evacuation time to $2$ hours.

VacuTech's management is considering the purchase of this new pump and has asked Doreen Harris, the company

controller, to evaluate the financial impact of replacing the existing pump with the new model. Doreen has gathered the

following information prior to preparing her analysis:

The new pump could be installed and placed in service on January $1,2019.$ The pump's cost is $$708,000$; installing,

testing, and debugging the machine will cost $$22,000($which should be capitalized$).$ The pump would be assigned to

the $3-$year class for depreciation under the Modified Accelerated Cost Recovery System $($MACRS$)$ and is expected to

have an $$90,000$ salvage value when it is sold at the end of $4$ years. Depreciation on the equipment would be

recognized starting in $2019,$ and MACRS rates $($rounded$)$ would be as follows:

The current pump is being depreciated under MACRS and will be fully depreciated by the time the new pump is

placed in service. If the firm purchases the new pump, it will sell the current pump for a net price of $$60,000.$

At the current rate of production, the new pump's greater efficiency will result in annual pretax cash savings of

$$135,000.$

VacuTech is able to sell all testing instruments that it can produce. Because of the new pump's increased speed,

output is expected to increase by $40$ units in $2019,60$ units in both $2020$ and $2021,$ and $80$ units in $2022.$ Cash$-$based

manufacturing costs for all additional units would be reduced by $$200$ per unit $($in addition to the $$135,000$ savings

noted above$).$

VacuTech is subject to a $40\%$ income tax rate. For evaluating capital investment proposals, management assumes

that annual cash flows occur at the end of the year and uses a $15\%$ after$-$tax discount rate.

Required:

Calculate the net present value $($NPV$)$ at January $1,2019,$ of the estimated after$-$tax cash flows that would result from its acquisition.

Use the built$-$in NPV function in Excel to estimate the NPV of the proposed investment.$)($Negative amount should be indicated with a

minus sign. Round final answer to the nearest whole dollar.$)$

Answer is complete but not entirely correct.

Estimated net present value

$$(10,628)$