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 55000 to keep it operational. The existing sewing machine can be sold today for 250000. The new sewing machine would require a one-time 85000 training cost. Operating cost would decrease by the following amounts for 1 to 7 years.

year 1	390000
2	400000
3	411000
4	426000
5	434000
6	435000
7	436000

the new sewing machine would be depreceiated according to the declining balance method at a rate of 20%. The salvage value is expected to be 400000. This new equipment would require mainteance cost of 100000 at the end of the fifth year. The cost of capital is 9%.

Instructions

use the net present value method to determine whether Hillsong should purchase the new machine to replace the existing machine and state the reason for your conclusion.