AFB, Inc is considering replacing an old machine with a new one. Two months ago their chief
engineer completed a training seminar on the new machine's operation and efficiency. The $3,000
cost for this training session has already been paid.
If the new machine is purchased, it would
require $7,000 in installation and modification costs to make it suitable for operation in the factory.
The old machine originally cost $80,000 five years ago and is being depreciated by $10,000 per year.
The new machine will cost $100,000 before installation and modification. It will be depreciated by
$12,000 per year. The old machine can be sold today for $12,000. The marginal tax rate for the firm
is 40%. Compute the relevant initial outlay in this capital budgeting decision.
A) $97,800 B) $90,800 C) $79,500 D) $87,800
D
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