Planning project that will both expand the firm operations

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Reference no: EM131616137

A firm is planning a project that will both expand the firm’s operations and replace some of the older, less efficient assets of the firm. The new assets will cost the firm $200,000 plus an additional $5,000 for delivery and $25,000 for installation. Old assets being replaced have a book value of $50,000 and can be sold pre-tax for $40,000. The new project will require additional land. The land to be used was purchased three years ago for $75,000 but could be sold today for $140,000 net of taxes. The new project will require an increase of $20,000 in net working capital immediately. What is this project’s net investment? Use 40% for the effective tax rate.

A. $350,000

B. $281,000

C. $390,000

D. $346,000

Reference no: EM131616137

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