Business, 01.11.2019 04:31 michaeltheballer1

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:

year 1 $390,000
2 400,000
3 411,000
4 426,000
5 434,000
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 $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.

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