## (Solved) Hiland Inc. manufactures snowsuits. Hiland is considering

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 \$260,000. 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 2 400,000 3 411,000 4 426,000 5 434,000 6 435,000 7 436,000

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 \$350,000. This new equipment would require maintenance costs of \$100,000 at the end of the fifth year. The cost of capital is 9%. (Refer the below table)

a. Calculate the net present value.

 Net present value \$

b. Should Hiland Inc. purchase the new machine to replace the existing machine?

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This question was answered on: Oct 15, 2019

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