What is the net investment required for a pitting machine that will cost $35,000 including installation? The machine replaces a machine that cost $5,000 when purchased five years ago. The old machine has been fully depreciated but has a market value of $6,000. Assume the marginal tax rate is 40 percent.
A) $29,000
B) $31,400
C) $32,600
D) $34,505

Question

Quizplus · Accepted Answer

The net investment required for the new pitting machine is calculated by taking the purchase cost of the new machine, subtracting the after-tax proceeds from the sale of the old machine, and adding back any taxes paid on the sale of the old machine. The purchase cost of the new machine is $35,000. The old machine, fully depreciated, has a book value of $0 and a market value of $6,000, resulting in a gain of $6,000. The tax on this gain is 40% of $6,000, which is $2,400. Therefore, the after-tax proceeds from the sale are $6,000 - $2,400 = $3,600. The net investment required is $35,000 - $3,600 = $31,400.

What Is the Net Investment Required for a Pitting Machine