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How much will be the initial investment of replacing unit

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Question - Ikea is considering replacing the existing unit with a newer, more efficient one. The unit, which originally cost $500,000, currently has a book value of $250,000. The new unit will cost $600,000 and will also require an initial increase in net working capital of $40,000. Additionally, in order to make the new unit operational, shipping and installation costs will require a further $50,000 investment. Ikea can sell the existing machine today for $280,000. Assume Ikea's tax rate is 30 percent. How much will be the initial investment of replacing the existing unit?

Reference no: EM132632937

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