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%.How much is the initial cash outlay of the processor?

Question

Quizplus · Accepted Answer

The initial cash outlay of the processor can be calculated as follows:
Initial cost = Price + Transportation Costs + Installation Costs
Initial cost = $600,000 + $60,000 + $40,000
Initial cost = $700,000
In addition to the initial cost, Waste Free also needs to increase its investment in accounts receivable and inventory. Therefore, the total initial cash outlay will be:
Total Initial Cash Outlay = Initial Cost + Investment in Accounts Receivable + Investment in Inventory
Total Initial Cash Outlay = $700,000 + $80,000 + $150,000
Total Initial Cash Outlay = $930,000
Therefore, the best choice is C, with an initial cash outlay of $930,000.

The Board of Directors of Waste Free Chemicals Is Considering