Nautical Creations is one of the largest producers of miniatureships in a bottle. An especially complex part of one of the shipsneeds special production equipment that is not useful for otherproducts. The company purchased this equipment early in 2015 for$200,000. It is now early in 2019, and the manager of the ModelShips Division, Jeri Finley, is thinking about purchasing newequipment to make this part. The current equipment will last forfour more years with zero disposal value at that time. It can besold immediately for $40,000. The following are last year's totalmanufacturing costs, when production was 8,200 ships:
| Direct materials | $31,570 |
| Direct labor | 31,160 |
| Variable overhead | 13,530 |
| Fixed overhead | 37,720 |
| Total | $113,980 |
The cost of the new equipment is $140,000. It has a four yearuseful life with an estimated disposal value at that time of$50,000. The sales representative selling the new equipment stated,"The new equipment will allow direct labor and variable overheadcombined to be reduced by a total of $2.25 per unit." Finley thinksthis estimate is accurate, but also knows that a higher quality ofdirect material will be necessary with the new equipment, costing$0.15 more per unit. Fixed overhead costs will increase by$4,100.
Finley expects production to be 8,650 ships in each of the nextfour years. Assume a discount rate of 5%.
REQUIRED
1. What is the difference in net present values if NauticalCreations buys the new equipment instead of keeping their currentequipment?
