Carla Vista Inc. manufactures snowsuits. Carla Vista is considering purchasing a new sewing machine at a cost
Question:
Carla Vista Inc. manufactures snowsuits. Carla Vista 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, Carla Vista spent $55,000 to keep it operational. The existing sewing machine can be sold today for $241,380. 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 | $390,000 | ||
2 | 400,500 | |||
3 | 410,200 | |||
4 | 425,800 | |||
5 | 433,600 | |||
6 | 434,500 | |||
7 | 436,900 |
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 $380,000. This new equipment would require maintenance costs of $96,200 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 | $enter the net present value in dollars rounded to 0 decimal places |
Determine whether Carla Vista should purchase the new machine to replace the existing machine?
select an option YesNo |