A new machine\'s price is $50,000 plus additional $10,000 for shipping and insta

Question

A new machine's price is $50,000 plus additional $10,000 for shipping and installation. The machine falls into the MACRS three year class, and hence the tax depreciation allowances are .33, .45 and .15 in Years 1,2 and 3 respectively. The machine will be sold at the end of tree years for $20,000. the machine will have no effect on revenue, but will save $20,000 per year in before-tax operating costs. The firm's tax rate is 40% and its appropriate cost of capital is 10%,
What is the project's net investment outlay in year 0?
possible answers:
$50,000
$60,000
$0
$20,000

Explanation / Answer

$50,000

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