A company is considering purchasing a new machine, at a cost of $50,000.This amount will be written off over 5 years at $10,000 per year.In the first year the company will have to increase its accounts receivable by $4,000, and inventory by $8,000.The disposal value of the machine being replaced is $1,500 and will be used to offset the amount borrowed for the new machine.What is the initial working capital investment required for the purpose of capital budgeting?
A)$8,000
B)$60,500
C)$10,500
D)$12,000
E)$4,000

Question

Quizplus · Accepted Answer

The initial working capital investment is the increase in accounts receivable ($4,000) plus the increase in inventory ($8,000), totaling $12,000. The disposal value of the old machine does not affect the working capital calculation.

A Company Is Considering Purchasing a New Machine, at a Cost