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 Hillsong should purchase the new machine to replace the existing machine, and state the reason for your conclusion.
E12-5
Bruno Corporation is involved in the business of injection molding of plastics. It is considering the purchase of a new computer-aided design and manufacturing machine for $ 430,000. The company believes that with this new machine it will improve productivity and increase quality, resulting in an increase in net annual cash flows of $ 101,000 for the next 6 years. Management requires a 10 % rate of return on all new investments.
Instructions
Calculate the internal rate of return on this new machine. Should the investment be accepted?
E12-8
Pierre ' s Hair Salon is considering opening a new location in French Lick, California. The cost of building a new salon is $ 300,000. A new