Question
In: Finance
Due to expected increases in sales, the Target Copy Company is contemplating purchasing a new printing...
Due to expected increases in sales, the Target Copy Company is contemplating purchasing a new printing machine costing $ 370 . To accomodate the new sales, the company will need to purchase additional inventory of $ 25 , part of which will be financed by an increase in accounts payable of $ 14 . Target's corporate tax rate is 42 percent. What is the initial after-tax outlay for the new printing machine? Since this is a cash outlay, be sure to use the - sign when writing your answer. Do not use the $ symbol.
Solutions
Expert Solution
Initial after tax outlay =
-(Cost of machine + Increase in working capital )
=Where Increase in working capital= Increase in Inventory less Increase in accounts payable =25-14=11
Initial after tax outlay = -(370+11)=-381
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