Use the following information to answer the following question(s).
Delta Inc.is considering the purchase of a new machine which is expected to increase sales by $10,000 in addition to increasing non-depreciation expenses by $3,000 annually.Due to the sales increase,Delta will need to increase working capital by $1,000 at the beginning of the project.Delta will depreciate the machine using the straight-line method over the project's five year life to a salvage value of zero.The machine's purchase price is $20,000.The firm has a marginal tax rate of 34 percent,and its required rate of return is 12 percent.
-The machine's initial cash outflow is
A)$20,000.
B)$21,000.
C)$27,000.
D)$23,000.

Question

Quizplus · Accepted Answer

The initial cash outflow includes the purchase price of the machine and the increase in working capital. So, the initial cash outflow is:
Purchase Price + Increase in Working Capital = $20,000 + $1,000 = $21,000. Therefore, the correct answer is B.

Use the Following Information to Answer the Following Question(s)