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Calculate the initial investment of the replacement project

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Reference no: EM133050582

Question - Canon Limited wants to replace equipment that has reached the end of its useful life with new equipment that will cost R600,000. Additional installation costs of R80,000 will have to be incurred on this new equipment. The old equipment has a NIL book value but can be sold for R50,000. Clean-up and removal costs of R6,000 will have to be paid for the old equipment.

Working capital for the old equipment amounted to R70,000. The new equipment will result in an increase in working capital of R110,000.

The company is subject to a tax rate of 28%.

REQUIRED - Calculate the initial investment of the replacement project for Canon Ltd.

Reference no: EM133050582

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