Exercise 26-3 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 $243,773. 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	$389,600
2	400,100
3	410,700
4	426,000
5	433,400
6	434,700
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 $379,700. This new equipment would require maintenance costs of $99,500 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 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

$

Determine whether Hillsong should purchase the new machine to replace the existing machine?

YesNo

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