Blue Ocean Co.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.Blue Ocean will need to invest $75,000 for additional inventory.The machine has an IRS approved useful life of seven years; it is presumed to have no salvage value.It will only be operated for three 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 amount includes the cost of the machine ($2,575,000), the required modifications ($375,000), and the additional inventory ($75,000). The feasibility study cost is a sunk cost and not included in the investment amount. Therefore, the total investment is $2,575,000 + $375,000 + $75,000 = $3,025,000.