Question

Metro Corporation will spend $1 million for special manufacturing equipment. Shipping and installation charges will amount to $175,000 and an initial increase in net working capital of $50,000 will be required. The equipment will replace an existing machine that has a salvage value of $85,000 and a book value of $140,000. If Metro has a current marginal tax rate of 34%, what is the amount of the initial outlay for this project

Answer 1

Answer: (1121300)

Explanation:

The initial outlay for the project will be:

Machinery purchase price = =-1000000-175000 = (1,175,000)

Less: Proceed from old machine =

= =85000+(140000-85000) × 34% = 103,700

Net working capital = 50,000

Initial outlay = (1121300)