A firm is considering a capital project for which the following information is a

Question

A firm is considering a capital project for which the following information is available: An existing piece of equipment that would be disposed of to make room for new equipment has a historical cost of $370,000. It has a salvage value of $10.000 and has been depreciated on a straight-line basis for 16 of the estimated 18 years of its useful life. The new equipment has a cost of $500,000 and the firm expects it will have to devote $20,000 in cash and $24,000 in accounts receivable to the new project. The firm's effective tax rate is 40%. The required net initial invested in the new project is $544,000 $534,000

Explanation / Answer

Details Amount Amount Purchase Cost 5,00,000.00 Less Salvage value    -10,000.00 Net Investment in WC Cash 20000 Account Receivable 24000      44,000.00 5,34,000.00

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