Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Question 2 of 8 0/2 E Wildhorse Inc. manufactures snowsuits. Wildhorse is considering purchasing a new sewing machine at a cost of $2.45 million.
Question 2 of 8 0/2 E Wildhorse Inc. manufactures snowsuits. Wildhorse is considering purchasing a new sewing machine at a cost of $2.45 million. Its existing machine was purchased 5 years ago at a price of $1.8 million; six months ago, Wildhorse spent $55,000 to keep it operational. The existing sewing machine can be sold today for $245,090. 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 $389,800 2 399,800. 3 410,200 4 425,400 5 432,400 6 435,000 7 436,000 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 $380,800. This new equipment would require maintenance costs of $99,000 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 then enter with negative sign preceding the number eg-45 or parentheses eg. (45), Round present value answer to O decimal places, eg. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided) Calculate the net present value. Net present value $ 54800 Determine whether Wildhorse should purchase the new machine to replace the existing machine?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started