Exercise 24-3 Open Show Work Exercise 24-3 Hiland Inc. manufactures snowsuits. H
ID: 2450746 • Letter: E
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Exercise 24-3
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Exercise 24-3
Hiland Inc. manufactures snowsuits. Hiland 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, Hiland spent $55,000 to keep it operational. The existing sewing machine can be sold today for $240,921. 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 2 399,600 3 410,700 4 425,100 5 433,400 6 435,300 7 437,300
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 $379,700. This new equipment would require maintenance costs of $96,000 at the end of the fifth year. The cost of capital is 9%.
Click here to view the factor table.
(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
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 answer for present value to 0 decimal places, e.g. 125.)
Calculate the net present value.
Net present value $
Should Hiland Inc. purchase the new machine to replace the existing machine?
YesNo Click if you would like to Show Work for this question:
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Exercise 24-3 Open Show Work Exercise 24-3 Hiland Inc. manufactures snowsuits. H
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