Reference no: EM132995732

Sunland Inc. manufactures snowsuits. Sunland 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; 6 months ago, Sunland spent $55,000 to keep it operational. The existing sewing machine can be sold today for $ 244,396. 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 $ 389,500
2 400,400
3 410,500
4 425,400
5 433,000
6 435,400
7 436,600

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 $ 379,200. This new equipment would require maintenance costs of $ 98,000 at the end of the fifth year. The cost of capital is 9%.

Problem 1: Calculate the net present value. (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.)