Question

Bryson Sciences is planning to purchase a​ high-powered microscopy machine for $ 385,000 and incur an additional $ 31,600 in installation expenses. It is replacing older microscopy equipment that can be sold for $ 116,200​, resulting in taxes from a gain on the sale of $ 42,900. Because of this​ transaction, current assets will increase by $ 20,000 and current liabilities will increase by $ 5,100. Calculate the initial investment in the​ high-powered microscopy machine.

Answer 1

Answer : Initial investment in the​ high-powered microscopy machine is $358,200.

Calculation of Initial Investment

Initial Investment = Purchase price of New Equipment - After tax salvage Value + Increase in Net working Capital

Purchase of New Equipment = Purchase Price + Installation expenses

= 385,000 + 31,600

= 416,600

After tax salvage Value = Salvage Value - Taxes on gain on sale

= 116,200 - 42,900

= 73,300

Increase in Net working Capital = Current Assets - Current Liabilities

= 20000 - 5100

= 14900

Initial Investment = 416,600 - 73,300 + 14900

= 358,200