Question

Landscapes Unlimited has spent $2,100 evaluating a new service area for expanding its business territory. The expansion will require the purchase of a new truck for $34,900 and fitting the truck with a flatbed that will cost $6,600 to install. The company would realize $8,240 in​ after-tax proceeds from the sale of an old truck. If​ Landscapes' working capital is unaffected by this​ project, what is the initial investment amount for this​ project?

The initial investment will be $ ???

Answer 1

Purchase of New Truck = $34,900

Fitting the truck with flatbed cost = $6,600

After tax sale procceeds of old Asset = $8,240

Initial investment = Purchase of New Truck + Fitting the truck with flatbed cost - After tax sale procceeds of old Asset

= $34.900+$6,600 - $8,240

= $33,260

Therefore, Initial Investment will be $33,260

Note:

The amount spent on evaluating a new service area for expanding the business is sunk cost hence it should not be considered in initial investment of the project