Question

Whole Grain Bakery purchases an industrial bread machine for $21,000. In addition to the purchase price, the company makes the following expenditures: freight, $1,100; installation, $2,200; testing, $600; and property tax on the machine for the first year, $420. What is the initial cost of the bread machine

Answer 1

Initial cost is 25,320$

Step-by-step explanation:

Initial cost can be calculated according to the following formula:

Fixed capital investment-relates to money needed for purchasing of an item

+ Working capital investments - often considered as short-term investment mad at the beginning of the project to cover initial expenses of the project

- Salvage value - this item exists if the company decides to sell some of its old assets

+ (salvage value- book value) * (tax rate)- also exists in the case of selling of old equipment

In our case first item in the equation is 21,000$; second 3,900$ and we already have calculated tax, which in this case is property tax of 420$. Therefore, initial cost is 25,320$.