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Problem:

You have been asked by the president of your company to evaluate the proposed acquisition of new equipment. The equipment's basic price is $177,000, and shipping costs will be $3,500. It will cost another $26,600 to modify it for special use by your firm, and an additional $12,400 to install the equipment. The equipment falls in the MACRS 3-year class, and it will be sold after three years for $22,000. The equipment is expected to generate revenues of $173,000 per year with annual operating costs of $81,000. The firm's tax rate is 30.0%. Your company uses the 3-year MACRS method to depreciate the machine and equipment which are 33% 45%, 15% and 7%. The cost of capital is 11%.

Required:

Question: What is the net investment (initial outlay) for the project?

Note: Please provide full description.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91149495

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