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A project has an installed cost of $500,000 and requires an additional working capital investment of...

A project has an installed cost of $500,000 and requires an additional working capital investment of $100,000. The project replaces an existing piece of equipment that has an estimated salvage value of $7000 and has a book value of $2000. The firm's marginal tax rate is 40 percent. What is the Initial Outlay for this project? Answer: IO = $595,000

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Expert Solution

Cost of project $       5,00,000
Working capital investment $       1,00,000
After tax sale from existing piece of equipment $           -5,000
Initial outlay for this project $       5,95,000
Working:
Sales value a $             7,000
Book value b $           -2,000
Profit on sale c=a+b $             5,000
Tax on profit d=c*-40% $           -2,000
After tax sale value e=a+d $             5,000

jeff jeffy answered 9 months ago
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