Iniinitial investmest
Solve the Problem below
69. Given the following information, what is the required cash outflow associated with the acquisition of a new machine; that is, in a project analysis, what is the initial investment outlay at t = 0?
Purchase price of new machine | $8,000 |
Installation charge | 2,000 |
Market value of old machine | 2,000 |
Book value of old machine | 1,000 |
Inventory decrease if new machine is installed | 1,000 |
Accounts payable increase if new machine is installed | 500 |
Tax rate | 34% |
Required rate of return | 15% |
this is what I found, but not sure how it is derived or calculated.
Correct Answer: ??
Cost plus installation($10,000)
Sale of old machine+2,000 -
Tax effect of sale ($1,000 x 0.34)(350)
Decrease in working capital1,500
Total investment at t = 0($6,850)
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