Cupid Co. is evaluating the possible acquisition of a new machine to replace an existing machine. The new machine will cost $1,751,000. Freight and installation necessary to put the machine in service will cost $140,000. The firm expects that, due to increased sales, inventory and accounts receivable will increase by $170,000 and $120,000, respectively. Accounts payable are expected to increase by $150,000. The firm thinks that it could sell the existing machine for $180,000. The current book value of the existing machine is $130,000 and the firm's tax rate is 40%. What is the firm's initial outlay for this replacement project? a. $1,845,000 b. $1,860,300 c. $1,871,000 d. $1,905,000 e. $1,916,300
Cupid Co. is evaluating the possible acquisition of a new machine to replace an existing machine. The new machine will cost $1,751,000. Freight and installation necessary to put the machine in service will cost $140,000. The firm expects that, due to increased sales, inventory and accounts receivable will increase by $170,000 and $120,000, respectively. Accounts payable are expected to increase by $150,000. The firm thinks that it could sell the existing machine for $180,000. The current book value of the existing machine is $130,000 and the firm's tax rate is 40%. What is the firm's initial outlay for this replacement project? a. $1,845,000 b. $1,860,300 c. $1,871,000 d. $1,905,000 e. $1,916,300
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 18P
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Question
Cupid Co. is evaluating the possible acquisition of a new machine to replace an existing machine. The new machine will cost $1,751,000. Freight and installation necessary to put the machine in service will cost $140,000. The firm expects that, due to increased sales, inventory and accounts receivable will increase by $170,000 and $120,000, respectively. Accounts payable are expected to increase by $150,000. The firm thinks that it could sell the existing machine for $180,000. The current book value of the existing machine is $130,000 and the firm's tax rate is 40%. What is the firm's initial outlay for this replacement project?
a. $1,845,000
b. $1,860,300
c. $1,871,000
d. $1,905,000
e. $1,916,300
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