Question

Marston Manufacturing Company is considering a project that requires an investment in new equipment of $3,600,000, with an additional $180,000 in shipping and installation costs. Marston estimates that its accounts receivable and inventories need to increase by $720,000 to support the new project, some of which is financed by a $288,000 increase in spontaneous liabilities (accounts payable and accruals).
The total cost of Martson's new equipment is ___________

Answer 1

Answer:

These are the missing multiple choices:

a. $3,780,000, b. $4,212,000, c. $720,000

The correct option is A,$3,780,000

Explanation:

The  total cost of Martson's new equipment comprises of the invoice price of the equipment of $3,600,000 plus the cost of installation and shipping costs of $180,000.

The rationale for the shipping and installation is that costs of asset should include costs incurred in bringing the asset to its present location and condition such as installation and shipping costs.

The costs of the assets is $3,780,000($3,600,000+$180,000)