If Morgan Tool & Die Co.acquires a new turret lathe,the lathe will cost $80,000,transportation $6,000,installation $7,500.Installing the new lathe will allow Morgan to reduce its finished goods inventory by $10,000.For capital budgeting purposes,the initial investment required for the new lathe is
A)$83,500.
B)$87,500.
C)$93,500.
D)$103,500.

Question

Quizplus · Accepted Answer

The initial investment required for the new lathe is the cost of the lathe, plus the cost of transportation and installation, minus the reduction in finished goods inventory.Initial investment = Cost of lathe + Cost of transportation + Cost of installation - Reduction in finished goods inventoryInitial investment = $80,000 + $6,000 + $7,500 - $10,000Initial investment = $83,500