Hiland Inc. manufactures snowsuits. Hiland is considering purchasing a new sewin
ID: 2498314 • 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 $244,239. 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:
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 $379,300. This new equipment would require maintenance costs of $96,600 at the end of the fifth year. The cost of capital is 9%. (Refer the below table)
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. Round for Discount Factor to 5 decimal places, e.g. 0.17986.)
a. Calculate the net present value.
Explanation / Answer
Statement showing calculation of NPV .
Note: Tax rate is not given in the question Tax on cost savings and tax savings on depreciation is not considered while calculating NPV.
Particulars Time Amount PVF PV Cash outflows Purchase cost of new machine 0 $2450000 1 2450000 Less: Sale proceedsof new machine 0 $244239 1 244239 Present value of cash outflows 2205761 Cash Inflows Cost savings 1 389200 0.917 356896 2 399700 0.842 336547 3 410600 0.772 316983 4 425900 0.708 301537 5 432600 0.650 281190 6 435000 0.596 259260 7 436400 0.547 238710 Present value of cash inflow 2091125 NPV (114636)Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.