The net initial investment in the new machine
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A company purchased a machine for $100,000 four years ago. It was being depreciated on a straight-line basis over five years. The company decides to replace this machine today with a more productive machine that costs $125,000. The old machine can be sold today for $25,000. The income tax rate is 40%. The net initial investment in the new machine is
$125,000
$100,000
$105,000
$102,000
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Solution Summary
The net initial investment in the new machine is given.
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The net initial investment in the new machine is
Investment in new machine - Salvage value +/- Tax adjustment
125000-25000+( 40% on ...
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