You are given the following information. What is the initial cash outflow? Purch

Question

You are given the following information. What is the initial cash outflow?

Purchase and installation of new equipment                          $140,000
Sale price of replaced equipment                                           $  30,000
Book value of replaced equipment                                         $  50,000
When the new equipment is installed:                                   
   Inventory increase                                                               $  16,000
   Accounts payable increase                                                  $  2,000
   Tax rate                                                                                30%

$118,000

$148,000

$130,000

$120,000

Explanation / Answer

solution:

Purchase and installation of new equipment 140000 After tax sale price of replaced equipment = 30000 - (30000-50000)*0.3 -36000 inventory increase 16000 accounts payable increase -2000 initial cash outflow 118000

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