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Metro Corporation will spend $1 million for special manufacturing equipment, Shipping and installation charges will amount to 5175,000 and an initial increase in networking capital of $50,000 will be required
Metro Corporation will spend $1 million for special manufacturing equipment, Shipping and installation charges will amount to 5175,000 and an initial increase in networking capital of $50,000 will be required. The equipment will replace an existing machine that has a salvage value of $85.000 and a book value of $140,000. Il Metro has a current marginal tax rate of 34%, what is the amoun of the initial outlay for this project? $112.300 51021.300 51.140,000 O 5: 225.000 051243700
Expert Solution
Initial outlay=Equipment and shipping costs+increase in working capital-salvage value+(tax rate*(Salvage value-Book value))
=1,000,000+175,000+50,000-85,000+(34%*(85,000-140,000)
=1140000-187000
=1121300
Option I is correct
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