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ACC 560 Week 8 Homework Chapter 12 (E12-3, E12-5, E12-8)
Chapter 12: Planning for Capital Investments
E12-3
Hillsong Inc. manufactures snowsuits. Hillsong 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, 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%.