Question

a company is looking to purchase and replace a fixed asset for $250,000. it will sell...

a company is looking to purchase and replace a fixed asset for $250,000. it will sell the asset that will be replaced for $48,000 but will incur a $15,000 gain upon that sale. it must also commit $30,000 of working capital to the investment. The firm's tax rate is 35% what is the amount of the relevant initial investment

A) $202,000

B) $250,000

C) $262,750

D) $207,250

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Answer #1

Answer is Option D- $ 207,250

Sale of Old Assets      48,000.00
Tax on Gain(30%)        5,250.00
Net Cash from Sale of assets      42,750.00
Cost of New Assets    250,000.00
Net Cash from Sale of assets      42,750.00
Relevant Initial Investment    207,250.00

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