Hillsong Inc. manufactures snowsuits. Hillsong is considering purchasing a new sewing machine at a cost of $2.45 million. Its existi 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 $240,438. 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 $390,900 399,800 410,100 425,400 434,000 434,900 436,400 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 $379,100. 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 t number e.g. -45 or parentheses e.g. (45). Round present value answer to O 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?
Hillsong Inc. manufactures snowsuits. Hillsong is considering purchasing a new sewing machine at a cost of $2.45 million. Its existi 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 $240,438. 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 $390,900 399,800 410,100 425,400 434,000 434,900 436,400 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 $379,100. 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 t number e.g. -45 or parentheses e.g. (45). Round present value answer to O 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?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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 $240,438. 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 | Savings |
|------|-------------|
| 1 | $390,900 |
| 2 | $399,800 |
| 3 | $410,100 |
| 4 | $425,400 |
| 5 | $434,000 |
| 6 | $434,900 |
| 7 | $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 $379,100. This new equipment would require maintenance costs of $94,000 at the end of the fifth year. The cost of capital is 9%.
[Link to factor table]
Use the net present value method to determine the following:
1. **Calculate the net present value.**
(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.)
Net present value: $ [______]
2. **Determine whether Hillsong should purchase the new machine to replace the existing machine.**
[Dropdown for decision]
This section aims to help learners understand the financial evaluation involved in making an investment decision regarding company equipment.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F51038f17-8323-46ef-a18b-b108bad15422%2Fbc659c37-31c9-4555-afcf-cf170d6fe551%2Fx35qc6g_processed.png&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 $240,438. 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 | Savings |
|------|-------------|
| 1 | $390,900 |
| 2 | $399,800 |
| 3 | $410,100 |
| 4 | $425,400 |
| 5 | $434,000 |
| 6 | $434,900 |
| 7 | $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 $379,100. This new equipment would require maintenance costs of $94,000 at the end of the fifth year. The cost of capital is 9%.
[Link to factor table]
Use the net present value method to determine the following:
1. **Calculate the net present value.**
(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.)
Net present value: $ [______]
2. **Determine whether Hillsong should purchase the new machine to replace the existing machine.**
[Dropdown for decision]
This section aims to help learners understand the financial evaluation involved in making an investment decision regarding company equipment.
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