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?
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter22: Getting Divisions To Work In The Firm’s Best Interests
Section: Chapter Questions
Problem 5MC
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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 $240,438. 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 the
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?](/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 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 the
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?
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