The initial outlay calculation for an asset replacement decision normally includes any:
A)after-tax salvage value of the old asset.
B)an initial buildup in net working capital.
C)interest expense.
D)a and b

Question

Quizplus · Accepted Answer

The initial outlay calculation includes both the after-tax salvage value of the old asset (option A) and an initial buildup in net working capital (option B). Option C, interest expense, would be included in the calculation of annual cash flows, not the initial outlay. Therefore, the best choice is D, options A and B.

The Initial Outlay Calculation for an Asset Replacement Decision Normally