60.1K

Verified Solution

Link Copied!

Oriole Inc. manufactures snowsuits. Oriole is considering purchasing a new sewing machine at a cost of $2.45 million. Its existing machine was purchased 5 years ago at a price of $1.8 million; six months ago, Oriole spent $55,000 to keep it operational. The existing sewing machine can be sold today for $ 241,305. 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		$ 390,800
	2		400,900
	3		410,600
	4		425,200
	5		433,000
	6		434,600
	7		436,500

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 $ 379,200. This new equipment would require maintenance costs of $ 97,100 at the end of the fifth year. The cost of capital is 9%. Click here to view the factor 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 present value answer to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Calculate the net present value.

Net present value

$ enter the net present value in dollars rounded to 0 decimal places

Determine whether Oriole should purchase the new machine to replace the existing machine?

select an option YesNo

Answer & Explanation Solved by verified expert

See Answer