Answer:
NPV = 37,599 Negative
Explanation:
We can calculate the NPV of the new sewing machine by deducting the Present value of future cash inflows by Investment
Initial investment = Machine cost + Training cost - Salvage value
Initial investment = 2,450,000 + 85,000 - 250,000
Initial investment = 2,285,000
Year DF(9%) Present Value
1 Cash inflow 390,000 x 0.917 $357,798
2 Cash inflow 400,000 x 0.842 $336,672
3 Cash inflow 411,000 x 0.772 $317,367
4 Cash inflow 426,000 x 0.708 $301,789
5 Cash inflow 334,100 x 0.650 $217,077 (434,100 - 100,000)
6 Cash inflow 435,000 x 0.596 $259,376
7 Cash inflow 436,000 x 0.547 $238,507
7 Salvage value 400,000 x 0.547 $218,814
Present Value of cash inflow $2,247,401
Initial investment $2,285,000
NPV ($2,247,401 - $2,285,000) (37,599)
Conclusion: Hillsong should not purchase the new machine as the NPV of the machine is negative
