Anderson Clayton will purchase a new pellet mill that replaces 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 Net Investment for the new mill?
A)$392,800
B)$412,800
C)$374,800
D)$398,000

Question

Quizplus · Accepted Answer

Net Investment = Cost of new mill + Shipping costs + Steam line improvements - Sale of old mill - Increase in inventories - Increase in accounts receivable + Increase in accounts payable= $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 Replaces