XYZ is contemplating a capital project-based on the following information,
cost of new equipment including installation and freight (assume 5 yr straight line method) $150,000
market research, performed last year $50,000
prestart hiring and advertising exp $45,000
projects units to be sold (yrs 1-3) 20,000
projects units to be sold (yrs 4-5) 25,000
price per unit (yrs 1-3) $22
price per unit (yrs 4-5) $24
cost ratio (yrs 1-5) 65.0%
incremental cash expenses (yrs 1-5) $125,000
corporate tax rate 45%
corporate cost of capital (answer #1 c[DV] or d[MV]) 8.7%
to do the above project, XYZ would be selling their old equipment originally purchased for $180,000, 5 years ago, depreciated over 10 years with no salvage value. XYZ has a commitment from a buyer for the equipment for a price of $55,000. ( a tax loss is a tax credit)
Please find out the cash outlay and providing its procedures.