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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 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