Question

XYZ Company is considering whether a project requiring purchasing of new equipment worth investing. The firm has spent $12,000 on consulting 2 months prior to the project as well as $7,000 in market study about a year ago. In order to start the new project, the firm has to replace the old machine which has a book value of $0 and will be scraped. The new machine will cost the firm $220,000. In order to make the machine working condition, XYZ will spend $7,000 in installation and $3,000 in shipping. Since it will produce more, $10,000 investment in net working capital is required. The project will increase annual revenues by $125,000 and will increase annual operating cost by $45,000. The company has a marginal tax rate of 34%. It has the cost of capital of 14% and the project will last 5 years. What is the initial outlay of this project? What is the initial outlay of this project? Round to the nearest penny. Do not include a dollar sign in your answer. Type the absolute value of the answer. (i.e. If your answer is -$20,000 since it is cost to replace, type 20000 as your answer.)

Answer 1

The initial outlay of this project is $240.000

Step-by-step explanation:

Consider the following formula and variables

new machine cost 220.000

installation 7.000

shipping 3.000

working capital 10.000

Initial investment outlay = new machine cost + installation+ shipping+ working capital

=220.000+7.000+3.000+10.000=240.000