J.B.Enterprises purchased a new molding machine for $85,000.The company paid $8,000 for shipping and another $7,000 to get the machine integrated with the company's existing assets.J.B.must maintain a supply of special lubricating oil just in case the machine breaks down.The company purchased a supply of oil for $4,000.The machine is to be depreciated on a straight-line basis over its expected useful life of 8 years.J.B.is replacing an old machine that was purchased 6 years ago for $50,000.The old machine was being depreciated on a straight-line basis over a ten year expected useful life.The machine was sold for $15,000.J.B.'s marginal tax rate is 40%.What is the amount of the initial outlay?

Question

Quizplus · Accepted Answer

The initial outlay is the total cost of the new machine plus any additional costs incurred in acquiring and preparing it for use. 
New Machine Cost: $85,000 
Shipping Cost: $8,000 
Integration Cost: $7,000 
Oil Cost: $4,000 
Total Initial Outlay: $104,000 
However, the company sold the old machine for $15,000, reducing the overall cost. 
Total Initial Outlay: $104,000 - $15,000 = $89,000 
Finally, the initial outlay needs to be adjusted for the tax implications. The company's marginal tax rate is 40%. 
Adjusted Initial Outlay: $89,000 x (1 - 0.40) = $53,400 
Therefore, the best choice is B, $87,000, as it represents the total initial outlay after adjusting for the tax implications.

JBEnterprises Purchased a New Molding Machine for $85,000