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 $246,028. 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 $389,000 399,000 410,000 425,000 432.000 434,500 436,000 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 $379.000. This new equipment would require maintenance costs of $94,000 at the end of the fifth year. The cost of capital is 9%. 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 eg. (45). Round present value answer to 0 decimal places, eg. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided)
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 $246,028. 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 $389,000 399,000 410,000 425,000 432.000 434,500 436,000 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 $379.000. This new equipment would require maintenance costs of $94,000 at the end of the fifth year. The cost of capital is 9%. 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 eg. (45). Round present value answer to 0 decimal places, eg. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided)
Cornerstones of Cost Management (Cornerstones Series)
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ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
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Chapter19: Capital Investment
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![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 $246,028. 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
$389,000
399,000
410,000
425,000
432.000
434,500
436,000
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 $379,000. This new equipment would require maintenance costs of $94,000 at the end of the fifth year. The cost of
capital is 9%.
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 eg. (45). Round present value answer to 0 decimal places, eg 125. For calculation purposes, use 5 decimal
places as displayed in the factor table provided)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd7b6ce77-7d1f-42c7-90fc-6e082dc1db1b%2F1b35b17b-3111-447c-beab-5cfd10181b48%2Fdfmhyb4_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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 $246,028. 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
$389,000
399,000
410,000
425,000
432.000
434,500
436,000
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 $379,000. This new equipment would require maintenance costs of $94,000 at the end of the fifth year. The cost of
capital is 9%.
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 eg. (45). Round present value answer to 0 decimal places, eg 125. For calculation purposes, use 5 decimal
places as displayed in the factor table provided)
![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 $379.000. This new equipment would require maintenance costs of $94,000 at the end of the fifth year. The cost of
capital is 9%.
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 eg. (45). Round present value answer to 0 decimal places, eg. 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 Hillsong should purchase the new machine to replace the existing machine?
Yes
No
eTextbook and Media](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd7b6ce77-7d1f-42c7-90fc-6e082dc1db1b%2F1b35b17b-3111-447c-beab-5cfd10181b48%2Fcrd93s_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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 $379.000. This new equipment would require maintenance costs of $94,000 at the end of the fifth year. The cost of
capital is 9%.
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 eg. (45). Round present value answer to 0 decimal places, eg. 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 Hillsong should purchase the new machine to replace the existing machine?
Yes
No
eTextbook and Media
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