ABC already spent $85,000 on a feasibility study for a machine that will produce a new product. The machine will cost $2,575,000. Required modifications will cost $375,000. ABC will need to invest $75,000 for additional inventory. The machine has an IRS approved useful life of 7 years; it is presumed to have no salvage value. It will only be operated for 3 years, after which it will be sold for $600,000. What is the total investment amount required for the project?
A) $3,025,000
B) $2,950,000
C) $2,575,000
D) $2,350,000

Question

Quizplus · Accepted Answer

The total investment includes the cost of the machine ($2,575,000), modifications ($375,000), and additional inventory ($75,000), totaling $3,025,000. The feasibility study cost is a sunk cost and not included in the investment calculation.

ABC Already Spent $85,000 on a Feasibility Study for a Machine