Ivanhoe Inc. manufactures snowsuits. Ivanhoe 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, Ivanhoe spent $55,000 to keep it operational. The existing sewing machine can be sold today for $243,960. 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 2 3 4 5 6 7 $391,000 399,900 410,300 425,600 432,100 435,200 437,300 The new sewing machine would be depreciated according to the declining 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 $379,400. This new equipment would require maintenance costs of $98,600 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 $ No V 6476769 Determine whether Ivanhoe should purchase the new machine to replace the existing machine?
Ivanhoe Inc. manufactures snowsuits. Ivanhoe 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, Ivanhoe spent $55,000 to keep it operational. The existing sewing machine can be sold today for $243,960. 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 2 3 4 5 6 7 $391,000 399,900 410,300 425,600 432,100 435,200 437,300 The new sewing machine would be depreciated according to the declining 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 $379,400. This new equipment would require maintenance costs of $98,600 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 $ No V 6476769 Determine whether Ivanhoe should purchase the new machine to replace the existing machine?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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2
Transcribed Image Text:Ivanhoe Inc. manufactures snowsuits. Ivanhoe 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, Ivanhoe spent $55,000 to keep it operational. The
existing sewing machine can be sold today for $243,960. 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
2
3
4
5
6
7
$391,000
399,900
410,300
425,600
432,100
435,200
437,300
The new sewing machine would be depreciated according to the declining
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 $379,400. This new equipment would require maintenance costs of $98,600 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 $
No V
6476769
Determine whether Ivanhoe should purchase the new machine to replace the existing machine?
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