Problem:
A new machine can be purchased for $1,500,000. It will cost $45,000 to ship and $55,000 to fine-tune the machine. The new machine will replace an older version that is fully depreciated and will be sold for $125,000. The firm's income tax rate is 40%.
Requirement:
Question: What is the net investment cost of the machine for capital budgeting purposes?
- $1,525,000
- $1,725,000
- $1,600,000
- $1,675,000
Note: Provide support for rationale.