IBM is replacing an old assembly line that cost $80,000 five years ago with a new, more efficient machine that will cost $225,000. Shipping and installation will be an additional $20,000. The old machine has a book value of $15,000, but it will be sold for scrap for $5,000. The new machine will be depreciated with a useful life of 7 years based on MACRS guidelines. With increased production, inventories will increase by $4,000, accounts receivable will increase by $16,000, and accounts payable will increase by $14,000. 

If IBM has a marginal tax rate of 40 percent, what is the net investment?

Answer rating: 100% (QA)

Cost of new machine225000 Shipping and installation cost20000 Book value of the old machine15000 ... View the full answer