Exercise 24-3

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 $239,855. 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$389,0002400,9003411,0004425,7005432,4006435,4007436,900

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 $380,600. This new equipment would require maintenance costs of $94,400 at the end of the fifth year. The cost of capital is 9%.

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Use the net present value method to determine the following:(If net present value is negative thenenter 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$