Blossom Inc. manufactures snowsuits. Blossom is considering purchasing a new sewing machine at a cost of $2.45 million. Its existing machine was purchased 5 years ago at a price of $1.8 million; six months ago, Blossom spent $55,000 to keep it operational. The existing sewing machine can be sold today for $241,705. 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: Year 1 2 3 4 5 6 7 $390,100 400,600 410,600 425,000 432,900 434,500 436,400 The new sewing machine would be depreciated according to the declining-balance method at a rate of 20%. The salvage value is expected to be $379,900. This new equipment would require maintenance costs of $94,600 at the end of the fifth year. The cost of capital is 9%. Click here to view the factor table.
Blossom Inc. manufactures snowsuits. Blossom is considering purchasing a new sewing machine at a cost of $2.45 million. Its existing machine was purchased 5 years ago at a price of $1.8 million; six months ago, Blossom spent $55,000 to keep it operational. The existing sewing machine can be sold today for $241,705. 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: Year 1 2 3 4 5 6 7 $390,100 400,600 410,600 425,000 432,900 434,500 436,400 The new sewing machine would be depreciated according to the declining-balance method at a rate of 20%. The salvage value is expected to be $379,900. This new equipment would require maintenance costs of $94,600 at the end of the fifth year. The cost of capital is 9%. Click here to view the factor table.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Click here to view the factor table.
Use the net present value method to determine the following: (If net present value is negative then enter with negative sign preceding the
number eg.-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.
Net present value $
Determine whether Blossom should purchase the new machine to replace the existing machine?
No
Transcribed Image Text:Blossom Inc. manufactures snowsuits. Blossom is considering purchasing a new sewing machine at a cost of $2.45 million. Its existing
machine was purchased 5 years ago at a price of $1.8 million; six months ago, Blossom spent $55,000 to keep it operational. The
existing sewing machine can be sold today for $241,705. 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:
Year 1
2
3
4
5
6
7
$390,100
400,600
410,600
425,000
432,900
434,500
436,400
The new sewing machine would be depreciated according to the declining-balance method at a rate of 20%. The salvage value is
expected to be $379.900. This new equipment would require maintenance costs of $94,600 at the end of the fifth year. The cost of
capital is 9%.
Click here to view the factor table.
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