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1. A new project will cost $4,000,000 and will take $20,000 for installation and testing. It will replace an asset valued on
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Answer #1

Net initial cash outlay = Fixed Capital Investments + Net Working Capital Investments - Salvage Value of the old Project + Tax (Salvage Value - Book Value)

Net initial cash outlay = 4,000,000 + 20,000 + 0 - 500,000 + 0.35(500,000 - 250,000)

= 3520,000 + 87,500

= 3,607,500

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