Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 03 Aug 2017 My Price 5.00

Hiland Inc.

Hiland Inc. manufactures snowsuits. Hiland is considering purchasing a new sewing machine at a cost of $2.45 million. Its existing machine was purchased ?ve 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 ?fth 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.

Answers

Maurice Tutor
(5)
Status NEW Posted 03 Aug 2017 08:08 PM My Price 5.00

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