Question
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
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 $250,000. 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: $389,300
2: 399,900
3: 410,000
4: 425,500
5: 432,400
6: 434,500
7: 438,000
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 $379,400. This new equipment would require maintenance costs of$98,800 at the end of the fifth year. The cost of capital is 9%.
Calculate the net present value
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