The Board of Directors of Waste Free Chemicals is considering the acquisition of a new chemical processor. The processor is priced at $600,000 but would require $60,000 in transportation costs and $40,000 for installation. The processor will have a useful life of 10 years. The project will require Waste Free to increase its investment in accounts receivable by $80,000 and will also require an additional investment in inventory of $150,000. The firm's marginal tax rate is 40 percent. How much is the initial cash outlay of the processor?

Question

Quizplus · Accepted Answer

The initial cash outlay for the processor includes the purchase price, transportation costs, installation costs, additional investment in accounts receivable, and additional investment in inventory. Therefore, the total initial cash outlay is $600,000 (purchase price) + $60,000 (transportation) + $40,000 (installation) + $80,000 (accounts receivable) + $150,000 (inventory) = $930,000.

The Board of Directors of Waste Free Chemicals Is Considering