# Question: Hiland Inc manufactures snowsuits Hiland is considering purcha

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%.
Instructions
Use the net present value method to determine whether Hiland should purchase the new machine to replace the existing machine, and state the reason for your conclusion.

View Solution:

Sales69
Views1402