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IMANET CMA Exam - Topic 3 Question 22 Discussion
Topic #: 3
The Moore Corporation is considering the acquisition of a new machine. The machine can be purchased for $90,000; it will cost $6,000 to transport to Moore's plant and $9,000 to insall. It is estimated that the machine will last 10 years, and it is expected to have an estimated salvage value of $5,0O0 Over its 10-year life, the machine is expected to produce 2,000 units per year with a selling price of $500 and combined material and labor costs of $450 per unit. Federal tax regulations permit machines of this type to be depreciated using the straight-line method over 5 years with no estimated salvage value. Moore has a marginal tax rate of 40%. What is the net cash outflow at the beginning of the first year that Moore Corporation should use in a capital budgeting analysis?
Initially, the company must invest $105,000 in the machine. Consisting of the invoice price of $90 00. the delivery costs of $6,000, and the installation costs of $9,000.
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