XYZ would like to purchase a new machine. It will cost $50,000. Shipping and installation charges for the equipment are expected to total $5,000. This equipment will be depreciated using straight line for its 5 year economic life to an estimated salvage value of zero. In order to use this equipment, XYZ estimates it will have to add $7,000 initially to its net working capital.
If the machine is purchased, it will replace a machine with a book value of $10,000, the old machine can be sold for $25,000.
During the first year of operations, the company expects total revenues to increase by $50,000, and from years 2 to 5 increase by $60,000 per year.
The incremental operating expense is expected to be $10,000 in the first year and increase each year by 5%. The marginal tax rate is 40%.
Find the initial outlay/net investment.