Reference no: EM132812980

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 $241,293. 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 $390,800

2 400,900

3 410,600

4 425,200

5 433,000

6 434,600

7 436,500

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 $97,100 at the end of the fifth year. The cost of capital is 9%.

Problem 1: compute the net present value.