Business, 05.05.2020 23:28 lexybellx3

Concord Inc. manufactures snowsuits. Concord is considering purchasing a new sewing machine at a cost of $2.45 million. Its existing machine was purchased five years ago at a price of $1.8 million; six months ago, Concord spent $55,000 to keep it operational. The existing sewing machine can be sold today for $246,049. 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%.
Instructions:
Use the net present value method to determine whether Concord should purchase the new machine to replace the existing machine, and state the reason for your conclusion.

Answers: 3

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Concord Inc. manufactures snowsuits. Concord is considering purchasing a new sewing machine at a cos...