Crane Inc. manufactures snowsuits. Crane is considering purchasing a new sewing machine at a cost of $2.45 million. Its existingmachine was purchased 5 years ago at a price of $1.8 million; six months ago, Crane spent $55,000 to keep it operational. The existingsewing machine can be sold today for $241,835. The new sewing machine would require a one-time, $85,000 training cost. Operatingcosts would decrease by the following amounts for years 1 to 7:Year1$389,5002399,4003411,0004425,4005433,7006435,3007437,300The new sewing machine would be depreciated according to the declining-balance method at a rate of 20%. The salvage value isexpected to be $379,500. This new equipment would require maintenance costs of $94,500 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 signpreceding the number e.g. -45 or parentheses e.g. (45). Round present value answer to 0 decimal places, e.g. 125. Forcalculation purposes, use 5 decimal places as displayed in the factor table provided.)Calculate the net present value.Net present value$54101Determine whether Crane should purchase the new machine to replace the existing machine?No +

Net present worth, or NPV, is utilized to ascertain the ongoing complete worth of a future stream of…

puld decrease by the following amounts for years 1 to 7: 1 $389,500 399,400 3 411,000 4 425,400 433,700 6 435,300 7. 437,300 w sewing machine would be depreciated according to the declining-balance method at a rate of 20%. The salvage value is d to be $379,500. This new equipment would require maintenance costs of $94,500 at the end of the fifth year. The cost of 5 9%. re to view the factor table. net present value method to determine the following: (If net present value is negative then enter with negative sign ng the number e.g. -45 or parentheses e.g. (45). Round present value answer to 0 decimal places, e.g. 125. For tion purposes, use 5 decimal places as displayed in the factor table provided.) e the net present value. esent value 2$ 54101 ine whether Crane should purchase the new machine to replace the existing machine?

puld decrease by the following amounts for years 1 to 7: 1 $389,500 399,400 3 411,000 4 425,400 433,700 6 435,300 7. 437,300 w sewing machine would be depreciated according to the declining-balance method at a rate of 20%. The salvage value is d to be $379,500. This new equipment would require maintenance costs of $94,500 at the end of the fifth year. The cost of 5 9%. re to view the factor table. net present value method to determine the following: (If net present value is negative then enter with negative sign ng the number e.g. -45 or parentheses e.g. (45). Round present value answer to 0 decimal places, e.g. 125. For tion purposes, use 5 decimal places as displayed in the factor table provided.) e the net present value. esent value 2$ 54101 ine whether Crane should purchase the new machine to replace the existing machine?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Crane Inc. manufactures snowsuits. Crane is considering purchasing a new sewing machine at a cost of $2.45 million. Its existing
machine was purchased 5 years ago at a price of $1.8 million; six months ago, Crane spent $55,000 to keep it operational. The existing
sewing machine can be sold today for $241,835. 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
$389,500
2
399,400
3
411,000
4
425,400
5
433,700
6
435,300
7
437,300
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 $379,500. This new equipment would require maintenance costs of $94,500 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 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
$
54101
Determine whether Crane should purchase the new machine to replace the existing machine?
No +

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