A firm has an opportunity to invest in a new device that will replace two of the firm's older machines. The new device costs Sh.570,000 and requires an additional outlay of Sh.30,000 to cover installation and shipping. The new device will cause the firm to increase its net working capital by Sh.20,000. Both of the old machines can be sold-the first for Sh.100,000 (book value equals Sh.95,000) and the second for Sh.150,000 (book value equals Sh.75,000). The original cost of the first machine was Sh.200,000, and the original cost of the second machine was Sh.140,000. The firm's marginal tax bracket is 40 percent. Required: Compute the net investment for this project.

A firm has an opportunity to invest in a new device that will replace two of the firm's older machines. The new device costs Sh.570,000 and requires an additional outlay of Sh.30,000 to cover installation and shipping. The new device will cause the firm to increase its net working capital by Sh.20,000. Both of the old machines can be sold-the first for Sh.100,000 (book value equals Sh.95,000) and the second for Sh.150,000 (book value equals Sh.75,000). The original cost of the first machine was Sh.200,000, and the original cost of the second machine was Sh.140,000. The firm's marginal tax bracket is 40 percent. Required: Compute the net investment for this project.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 8P

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