Hillsong Inc . Manufactures snowsuits. Hillsong is considering purchasing a new sewing machine at a cost of $2.244 million. Its existing machine was purchased five years ago at a price of $1.8 million; six month ago. Hillsong spent $55,000 to keep it operational. The existing sewing machine can be sold today for $250,000. 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 $400,000. This new equipment would require maintenance costs of $100,000 at the end of the fifth year. the cost of capital is 9%. Use the net present value method to determine whether Hillsong should purchase the new machine to replace the existing machine, and state the reason for the conclusion.
Ryan Company is considering whether to invest in a piece of equipment that requires an investment of $400,000 today. The project will provide net before-tax operating cash inflows of $120,000 at the end of each year for eight years, and it will have a salvage value of $0 at the end of eight years. Ryan Company uses straight-line depreciation for income tax purposes. The income tax rate is 40% and the discount rate is 13%. Income taxes are paid at the end of the year.
Calculate the net present value of the piece of equipment.
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