Exercise 12-3 (Video) Hillsong Inc. manufactures snowsuits.Hillsong is considering purchasing a new sewing machine at a costof $2.45 million. Its existing machine was purchased five years agoat a price of $1.8 million; six months ago, Hillsong spent $55,000to keep it operational. The existing sewing machine can be soldtoday for $240,352. The new sewing machine would require aone-time, $85,000 training cost. Operating costs would decrease bythe following amounts for years 1 to 7: Year 1 $390,600 2 400,200 3410,000 4 425,200 5 432,400 6 435,500 7 436,300 The new sewingmachine would be depreciated according to the declining-balancemethod at a rate of 20%. The salvage value is expected to be$380,500. This new equipment would require maintenance costs of$94,900 at the end of the fifth year. The cost of capital is 9%.Click here to view PV table. Use the net present value method todetermine the following: (If net present value is negative thenenter with negative sign preceding the number e.g. -45 orparentheses e.g. (45). Round present value answer to 0 decimalplaces, e.g. 125. For calculation purposes, use 5 decimal places asdisplayed in the factor table provided.) Calculate the net presentvalue. Net present value $ Determine whether Hillsong shouldpurchase the new machine to replace the existing machine?
