achine can be sold today for $240,352. The new sewing machine would require a one-time, $85,000 training cost. Operating c
achine can be sold today for $240,352. The new sewing machine would require a one-time, $85,000 training cost. Operating c
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Hillsong Inc. manufactures snowsuits. Hillsong is considering purchasing a new sewing machine at a cost of $2.45 million. Its existing machine was purchased five years ago at a price of $1.8 million; six months ago, Hillsong spent $55,000 to keep it operational. The existing sewing machine can be sold today for $240,352. The new sewing machine would require a one-time, $85,000 training cost. Operating costs would decrease by the following amounts for years 1 to 7:
The new sewing machine would bedepreciated according to the declining-balance method at a rate of 20%. The salvage value is expected to be $380,500. This new equipment would require maintenance costs of $94,900 at the end of the fifth year. The cost of capital is 9%.
Use thenet present value method to determine the following: (If net present value is negative then enter with negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round present value answer to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Calculate the net present value.
Year | 1 | $390,600 | ||
---|---|---|---|---|
2 | 400,200 | |||
3 | 410,000 | |||
4 | 425,200 | |||
5 | 432,400 | |||
6 | 435,500 | |||
7 | 436,300 |
The new sewing machine would be
Use the
Calculate the net present value.
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