20. A Firm is planning a project that will both expand the firms operations and

Question

20. A Firm is planning a project that will both expand the firms operations and replace some of the older, less efficient assets of the firm. The new assets will cost the firm $200,000 plus an additional $5,000 for delivery and $25,000 for installation. Old assets being replaced have a book value of $50,000 and can be sold pre-tax for $40,000. The new project will require additional land. The land to be used was purchased three years ago for $75,000 but could be sold today for $140,000 net of taxes. The new project will require an increase of $20,000 in net working capital immediately. What is this project’s net investment? Use 40% for the effective tax rate.

Explanation / Answer

Cost of New Assets including delivery and installation = ($200,000 + $5,000 + $25,000) $230,000.00 Land $140,000.00 After tax Salvage Value = $40,000 + 40%x (50000-40000) -$44,000.00 Net working Capital $20,000.00 Project Net investment $346,000.00

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.