A new machine\'s is 50,000 plus an additional 10,000 for shiping and installatio

Question

A new machine's is 50,000 plus an additional 10,000 for shiping 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 three years for 20,000. The machine will have no effect on revenues, but will save 20,000 per year in before-tax operating costs. The firm's tax rate is 40 percent and its approriate cost of capital is 10%. What is the project's net investment outlay in year 0?

Explanation / Answer

initial outflow=cost of machine+shiping charges

50000+10000=60000

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