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 $241,533. 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 $389,600 2 399,600 3 410,800 4 426,000 5 433,300 6 434,600 7 436,700
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 $241,533. 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 $389,600 2 399,600 3 410,800 4 426,000 5 433,300 6 434,600 7 436,700
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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 $241,533. 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:
$389,600
399,600
410,800
4 426,000
Year 1
2
3
5 433,300
434,600
436,700
6
7
The
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 $95,500 at the end of the fifth year. The cost of capital is 9%.
Click here to view PV 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 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.
Net present value
Determine whether Hillsong should purchase the new machine to replace the existing machine?
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