You currently have your own business that sells Blue Hats, but you are thinking of transitioning into the Red Hat market! This transition will require you to purchase new machinery. The current machinery is likely to be operable for 5 more years but will have zero value after the 5 years. You can sell the current machine now for $120,000. The new machinery required for the transition will cost $600,000 and will require other cash investments totally $155,000 to get the machines functioning. By transitioning into the Red Hat market, you will earn higher profit margins resulting in $130,000 in additional cash inflows during the year of acquisition and $110,000 each additional year of use. The new machine will have a five-year life, and zero disposal value. There is are no tax considerations in this problem.

What is the net present value of the investment (rounded down to the nearest $1,000), assuming the discount rate is 16%? Should you purchase the new machine? Below is a discount rate table that may help with the calculations.