Question

A new machine can be purchased for $1,200,000. It will cost $35,000 to ship and $15,000 to modify the machine. A $12,000 recently completed feasibility study indicated that the firm can employ an existing factory owned by the firm, which would have otherwise been sold for $180,000. The firm will borrow $750,000 to finance the acquisition. Total interest expense for 5-years is expected to approximate $350,000. What is the investment cost of the machine for capital budgeting purposes? (Points : 1) $2,180,000 $1,780,000 $1,442,000 $1,430,000

Answer 1

Answer:

$1,430,000

Explanation:

The computation of the investment cost of the machine for capital budgeting purposes is shown below:

= New machine purchase cost + shipping cost + modifying cost + sale value

= $1,200,000 + $35,000 + $15,000 + $180,000

= $1,430,000

The other cost i.e existing factory owned amount, interest expense would not be considered which is given in the question.