I am planning to replace automatic range ball washer at my golf course. The new

Question

I am planning to replace automatic range ball washer at my golf course. The new washer costs $55,000 & requires a new electrical circuit (that will cost $7,500) in order to get it operational. I have found another low budget golf course that will give me $35,000 for my old one. From the $35,000, I will then owe Uncle Sam $11,250 in taxes. Since this washer can clean a higher volume of golf balls, my golf ball inventory needs to go up by $6,000 & my water bill (liability) will increase by $4,000.

Please calculate my initial investment

Explanation / Answer

Initial cost of new washer = $55,000.

Initial cost of old washer

Cost of washer = $35,000

Increase in inventory = $6,000

Increase in water bill (liability) = $4,000

Change In working capital = $6,000 - $4000

                                            = $2,000

So total initial investment = $35,000 + $2,000

                                           = $37,000

Hence initial investment in old washer is $37,000.

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