A $73,000 machine with a 8-year class life was purchased 5 years ago. The machinewill now be sold for $35,000 and replaced with a new machine costing $55,000, with a5-year class life. The new machine will not increase sales, but will decrease operatinggosts by $16,000 per year. Simplified straight line depreciation is employed for bothmachines, and the marginal corporate tax rate is 34 percent. What is the initial outlayfor the project? NOTE-- ALTHOUGH THE INITIAL OUTLAY IS NEGATIVE, PLEASEENTER YOUR ANSWER AS A POSITIVE SIGN. IN OTHER WORDS, IF YOURANSWER IS 10,000, ENTER IT AS 10,000. DO NOT ENTER THE DOLLAR SIGN.

Cost of old machine = $73,000Useful life = 8 yearsCost of new machine = $55,000Useful life = 5…

Answered: A $73,000 machine with a 8-year class…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 3P

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Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company’s tax rate is 25%. What is the initial investment outlay? The company spent and expensed $150,000 on research related to the new product last year. What is the initial investment outlay? Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. What is the initial investment outlay?
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