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A project has an installed cost of $500,000 and requires an additional working capital investment of...

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Finance

A project has an installed cost of $500,000 and requires anadditional working capital investment of $100,000. The projectreplaces an existing piece of equipment that has an estimatedsalvage value of $7000 and has a book value of $2000. The firm'smarginal tax rate is 40 percent. What is the Initial Outlay forthis project? Answer: IO = $595,000

How do you calculate this problem?

Answer & Explanation Solved by verified expert
3.6 Ratings (528 Votes)

Cost of project $       5,00,000
Working capital investment $       1,00,000
After tax sale from existing piece of equipment $           -5,000
Initial outlay for this project $       5,95,000
Working:
Sales value a $             7,000
Book value b $           -2,000
Profit on sale c=a+b $             5,000
Tax on profit d=c*-40% $           -2,000
After tax sale value e=a+d $             5,000

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Transcribed Image Text

A project has an installed cost of $500,000 and requires anadditional working capital investment of $100,000. The projectreplaces an existing piece of equipment that has an estimatedsalvage value of $7000 and has a book value of $2000. The firm'smarginal tax rate is 40 percent. What is the Initial Outlay forthis project? Answer: IO = $595,000How do you calculate this problem?

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