Hillsong Inc. manufactures snowsuits. Hillsong is considering purchasing a new sewing machine at a cost of $2.45 million. Its existingmachine was purchased five years ago at a price of $1.8 million; six months ago, Hillsong spent $55,000 to keep it operational. Theexisting sewing machine can be sold today for $244,396. 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:Year1234567$389,500400,400410,500425,400433,000435,400436,600The new sewing machine would be depreciated according to the declining-balance method at a rate of 20%. The salvage value isexpected to be $379,200. This new equipment would require maintenance costs of $98,000 at the end of the fifth year. The cost ofcapital is 9%.Click here to view the factor table. Use the net present value method to determine the following: (If net present value is negative then enter with negative sign preceding thenumber eg. -45 or parentheses e.g. (45). Round present value answer to O decimal places, e.g. 125. For calculation purposes, use 5 decimalplaces as displayed in the factor table provided.)Calculate the net present value.Net present value$Determine whether Hillsong should purchase the new machine to replace the existing machine?No V

Total Initial Outflow ParticularAmountOriginal Investment in New Machine $ 2,450,000.00One time…

Answered: Hillsong Inc. manufactures snowsuits.…

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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Beryl's Iced Tea currently rents a bottling machine for $55,000 per year, including all maintenance expenses. It is considering purchasing a machine instead, and is comparing two options: a. Purchase the machine it is currently renting for $160,000. This machine will require $23,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $250,000. This machine will require $15,000 per year in ongoing maintenance expenses and will lower bottling costs by $12,000 per year. Also, $39,000 will be spent upfront training the new operators of the machine. Suppose the appropriate discount rate is 8% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the rental of the machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a ten-year life with a negligible salvage value. The corporate tax rate is 20%. Should Beryl's Iced Tea continue…
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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 $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: 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 depreciated 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 the net present value method to determine the following: (If net present value is negative then enter with negative sign…
Beryl's Iced Tea currently rents a bottling machine for $54,000 per year, including all maintenance expenses. It is considering purchasing a machine instead and is comparing two options: a. Purchase the machine it is currently renting for $160,000. This machine will require $24,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $265,000. This machine will require $16,000 per year in ongoing maintenance expenses and will lower bottling costs by $13,000 per year. Also, $37,000 will be spent up front to train the new operators of the machine. Suppose the appropriate discount rate is 9% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the cost of the rental machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a 10-year life with a negligible salvage value. The marginal corporate tax rate is 30%. Should Beryl's Iced…

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