Question

Which of the following best describes the composition of depreciable asset in the initial outlay calculation?...

Which of the following best describes the composition of depreciable asset in the initial outlay calculation?

  • purchase price of a new asset
  • purchase price of a new asset, shipping/installation cost, initial investment in working capital, and net proceeds from the sale of the old asset
  • purchase price of a new asset, shipping/installation cost, and initial investment in working capital
  • purchase price of a new asset and shipping/installation cost
  • none of the above
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Answer #1

Answer:- Purchase price of a new asset, shipping/installation cost, initial investment in working capital, and net proceeds from the sale of the old asset

Explanation:-

Initial Outlay includes the following:

  • Capital Investment ( Including installation and shipping costs associated with purchase of the equipment )
  • Initial investment in working capital ( done to cover the initial operating expenses of the project)
  • Salvage Value ( It is net proceeds from the sale of the old asset. It is done in cases where old equipments are sold in connection with the starting of new project)
  • Any gains or losses realized on the sale of older equipment
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