Anderson Clayton will purchase a new pellet mill that will replace an older, less efficient mill. The new mill costs $360,000 and shipping costs are $10,000. Improving the steam lines to the new mill will cost an additional $22,000. The old mill has a book value of $25,000 and can be sold for $12,000. The installation of the new mill will cause inventories to increase by $8,000, accounts receivable will go up $20,000, and accounts payable will increase $10,000. If Anderson Clayton has a marginal tax rate of 40%, what is the NINV for the new mill?

Question

Quizplus · Accepted Answer

The NINV is calculated as the cost of the new mill plus shipping costs plus the cost of improving the steam lines minus the proceeds from the sale of the old mill plus the increase in inventories plus the increase in accounts receivable minus the increase in accounts payable.NINV = $360,000 + $10,000 + $22,000 - $12,000 + $8,000 + $20,000 - $10,000 = $392,800

Anderson Clayton Will Purchase a New Pellet Mill That Will