A new machine can be purchased for $1,200,000.It will cost $35,000 to ship and $15,000 to modify the machine.A $12,000 recently completed feasibility study indicated that the firm can employ an existing factory owned by the firm,which would have otherwise been sold for $180,000.The firm will borrow $750,000 to finance the acquisition.Total interest expense for 5-years is expected to approximate $350,000.What is the investment cost of the machine for capital budgeting purposes?

Question

Quizplus · Accepted Answer

To calculate the investment cost of the machine for capital budgeting purposes, we need to consider the following costs:
- Purchase cost of the machine = $1,200,000
- Shipping cost = $35,000
- Modification cost = $15,000
- Opportunity cost of not selling the factory = $180,000
- Interest expense for 5 years = $350,000

Therefore, the total investment cost of the machine would be:
$1,200,000 + $35,000 + $15,000 + $180,000 + $350,000 - $750,000 = $1,430,000

Option D is the correct answer.

A New Machine Can Be Purchased for $1,200,000