Hillsong Inc. manufactures snowsuits. Hillsong is considering purchasing a new sew- ing machine at a cost of $2.45 million. Its existing machine was purchased 5 years ago at a price of $1.8 million; 6 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: Year 1 2 3 4 5 6 7 $390,000 400,000 411,000 426,000 434,000 435,000 436,000 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 $400,000. This new equipment would require maintenance costs of $100,000 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. (CGA adapted) Rithor

B12.3 (LO 2), AN Hillsong Inc. manufactures snowsuits ine was purchased 5 years ago at a price of $1.8 ing machine at a cost of $2.45 million. Its existing mach ine wational. The existing sewing machine can million: 6 months ago, Hillsong spent $55,000 to keep ftoperational a one-time, $85,000 training cost. be sold today for $250,000. The new sewing machine would rectuire a 1 to 7 operating costs would decrease by the following amounts for years 1 to 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 $400,000. This new equipment would require maintenance costs of $100,000 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. (CGA adapted)