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Chapter $25$ Assignment $-$ ACC

Question $10$ of $15-$ Chapter $25$

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Question $10$ of $15$

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Blossom Inc. manufactures snowsuits. Blossom is considering purchasing a new sewing machine at a cost of $$2\mathrm{.}45$ million. Its existing. machine was purchased $5$ years ago at a price of $$1\mathrm{.}8$ million; six months ago, Blossom spent $$55,000$ to keep it operational. The existing sewing machine can be sold today for $$245,925.$ 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,$$$389,000$

$2399,000$

$3,410,000$

$4,425,000$

$5,432,000$

$6,434,500$

$7,436,000$

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 $$379,000.$ This new equipment would require maintenance costs of $$94,000$ at the end of the fifth year. The cost of capital is $9\%.$

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Use the net present value method to determine the following: $($If net present value is negative then enter 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 Blossom should purchase the new machine to replace the existing machine?

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