I have having trouble with this problem. Can anyone help me? I have included the

Question

I have having trouble with this problem. Can anyone help me? I have included the reference tables that we are required to use. FYI, I am using the textbook: Kimmel, Accounting: Tools for Decision Making, 5e. This is problem from Chapter 24 Planning Capital Investments. It is Exercise 24-3. Please note the text in red: PV is required to be rounded to 0 decimal places.

Exercise 24-3 Your answer is incorrect. Try again Hiland Inc. manufactures snowsuits. Hiland 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, Hiland spent $55,000 to keep it operational. The existing sewing machine can be sold today for $244,282. 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 $390,400 2 399,700 3 410,500 4 425,700 5 432,600 6 435,100 7 437,400 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 $379,900. This new equipment would require maintenance costs of $99,600 at the end of the fifth year. The cost of capital is 9% (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) 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 answer for present value to 0 decimal places, e.g. 125.) Calculate the net present value Net present value 86981.50

Explanation / Answer

For the purpose of computing the Net Present Value, let us work out the following information : Net Income per year (Net Savings per year) Year Decrease Depreciation Maintenance Net Savings in Operating on New Costs per year $ Costs $ Machine $ 1 390400 107755 282645 2 399700 102367.25 297332.75 3 410500 97248.8875 313251.1125 4 425700 92386.44313 333313.5569 5 432600 87767.12097 99600 344832.879 6 435100 83378.76492 351721.2351 7 437400 79209.82667 358190.1733 Initial Investment Made 2535000 Salvage Value -379900 Net Depreciable Value of Machine 2155100 Sale Value of Old Machine 244282 Cost of Capital 9% Based on this information, the Net Present Value is worked out as -7,58,780.14 - $ 758,780.14

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