Flem company considering replacing a filling line at oklahoma.The existing line was purchased several years ago 600,000.The line book value is 200,000, and flem managament feels that could be sold at this time for $150,000.A new increased capcity line can be purchased for 1,200,000.Delivery/installation of new line are expected to cost additional $100,000. Assuming fem marginal tax rate 40% calculate the net investment for new line.
To calculate the net investment for the new line, we will consider the cost of the new line, any additional costs for delivery and installation, and the proceeds from selling the existing line.
1. Cost of the new line: The new line has a purchase cost of $1,200,000.
2. Additional costs: Delivery and installation of the new line are expected to cost an additional $100,000.
3. Proceeds from selling the existing line: The existing line can be sold for $150,000.
To calculate the net investment, we need to subtract the proceeds from selling the existing line and take into account the marginal tax rate.
Net Investment = (Cost of the new line + Additional costs) - (Proceeds from selling the existing line x (1 - Marginal tax rate))
Net Investment = ($1,200,000 + $100,000) - ($150,000 x (1 - 0.40))
Net Investment = $1,300,000 - ($150,000 x 0.60)
Net Investment = $1,300,000 - $90,000
Net Investment = $1,210,000
Therefore, the net investment for the new line is $1,210,000.