airstat is replacing an old stamping line that costs 80,000 five years ago, with

Question

airstat is replacing an old stamping line that costs 80,000 five years ago, with a new more, efficent machine that will cost $225,000. shipping and installation will cost an additional $20,000. the old machine has a book value of $15,000 but will be sold as scrap for $5,000. the new machine will be depreciated with a seven year life under macrs guidelines. with increased production, inventory will increase $4,000, accounts receivable will increase $16,000 and accounts payable will increase $14,000. if airstat has a marginal tax rate of 40% what is the net investment?

Explanation / Answer

Calculation of Net Investment:

Cost of the New Machine = 225000 + 20000 = $245000

Scrap Value of the existing machine = $5000

Investment in Working capital = Increase in Receivable - Increase in payable = 16000 - 4000 = $12000

Net Investment

= Cost of the New Machine - Scrap Value of the existing machine + Investment in Working capital

= 245000 - 5000 + 12000

= $252000

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.