Waterway Inc. manufactures snowsuits. Waterway 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, Waterway spent $55,000 to keep it operational. The existing sewing machine can be sold today for $243,257. 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 $390,900 2 399,900 3 410,400 4 425,200 5 432,600 435,300 7 437,700 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 $379,700. This new equipment would require maintenance costs of $98,400 at the end of the fifth year. The cost of capital is 9%. Click here to view PV table. Use the net present value method to determine the following: (If net present value is negative then enter with negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round present value answer to O decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Calculate the net present value. Net present value :$ Determine whether Waterway should purchase the new machine to replace the existing machine?
Waterway Inc. manufactures snowsuits. Waterway 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, Waterway spent $55,000 to keep it operational. The existing sewing machine can be sold today for $243,257. 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 $390,900 2 399,900 3 410,400 4 425,200 5 432,600 435,300 7 437,700 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 $379,700. This new equipment would require maintenance costs of $98,400 at the end of the fifth year. The cost of capital is 9%. Click here to view PV table. Use the net present value method to determine the following: (If net present value is negative then enter with negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round present value answer to O decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Calculate the net present value. Net present value :$ Determine whether Waterway should purchase the new machine to replace the existing machine?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Waterway Inc. manufactures snowsuits. Waterway 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, Waterway spent $55,000 to keep it
operational. The existing sewing machine can be sold today for $243,257. 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
$390,900
2
399,900
3
410,400
4
425,200
5
432,600
435,300
7
437,700
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 $379,700. This new equipment would require maintenance costs of $98,400 at the end of the fifth year. The cost of
capital is 9%.
Click here to view PV table.
Use the net present value method to determine the following: (If net present value is negative then enter with negative sign preceding the
number e.g. -45 or parentheses e.g. (45). Round present value answer to O decimal places, e.g. 125. For calculation purposes, use 5 decimal
places as displayed in the factor table provided.)
Calculate the net present value.
Net present value
:$
Determine whether Waterway should purchase the new machine to replace the existing machine?
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