Question
Bramble Inc. manufactures snowsuits. Bramble is considering purchasing a new sewing machine at a cost of $2.45 million. Its existing machine was purchased five years
Bramble Inc. manufactures snowsuits. Bramble 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, Bramble spent $55,000 to keep it operational. The existing sewing machine can be sold today for $241,115. 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:
Year1$389,000 year 2: 400,400 year3; 411,000 year4: 425,700 year5: 433,800 year6: 435,200 year 7: 437,500
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 $380,100. This new equipment would require maintenance costs of $95,300 at the end of the fifth year. The cost of capital is 9%.
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