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ABC already spent $85,000 on a feasibility study for a machine that will produce a new...

ABC already spent $85,000 on a feasibility study for a machine that will produce a new product. The machine will cost $2,575,000. Required modifications will cost $375,000. ABC will need to invest $75,000 for additional inventory. The machine has an IRS approved useful life of 7 years; it is presumed to have no salvage value. It will only be operated for 3 years, after which it will be sold for $600,000. What is the total investment amount required for the project?


$3,025,000
$2,950,000
$2,575,000
$2,350,000

business   accounting   
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Answer #1

Calculation of Total Investment Required:

Particulars Amount
Purchase cost of Machine 2575000
Modification cost 375000
Additional Inventory Required 75000
Total Investment Required 3025000

We will not consider the historical cost already spent for feasibility study i.e. $85000 as part of investment.

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