Hiland Inc. manufactures snowsuits. Hiland is considering purchasing a new sewin
ID: 2491425 • Letter: H
Question
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 $243,259. 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 $390,600 2 399,000 3 410,300 4 425,600 5 432,300 6 435,100 7 436,400 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 $379,400. This new equipment would require maintenance costs of $97,600 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?
Explanation / Answer
Answer: Investment in new equipment =$2,450,000
Disposal of old equipment =$(243,259)
Additional training required =$ 85,000
Net initial investment required =$2,291,741
No, Hiland Inc. should not purchase the new machine to replace the existing machine.
Year P.V.F (9%) Cash Flow PV 0 1 -2291741 -2291741 1 0.917431193 390600 358349 2 0.841679993 399000 335830 3 0.77218348 410300 316827 4 0.708425211 425600 301506 5 0.649931386 334700 217532 6 0.596267327 435100 259436 7 0.547034245 815800 446271 NPV -55991Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.