Basin Manufacturing (40% marginal tax rate) is considering a plant expansion project. The equipment will cost $100,000 and will require an additional $10,000 for delivery and installation. The expansion also will require Basin to increase immediately its net working capital by $25,000. The expansion is expected to generate revenues of $150,000 per year. Calculate the project's net investment.

Question

Quizplus · Accepted Answer

The project's net investment is calculated by adding the cost of the equipment ($100,000), the cost for delivery and installation ($10,000), and the increase in net working capital ($25,000), which totals to $135,000. Taxes do not affect the calculation of net investment.

Basin Manufacturing (40% Marginal Tax Rate) Is Considering a Plant