A Company Is Considering Purchasing a New Machine, at a Cost

question 36

Multiple Choice

A company is considering purchasing a new machine, at a cost of $50,000.This amount will be written off over 5 years at $10,000 per year.In the first year the company will have to increase its accounts receivable by $4,000, and inventory by $8,000.The disposal value of the machine being replaced is $1,500 and will be used to offset the amount borrowed for the new machine.What is the initial working capital investment required for the purpose of capital budgeting?

• A)$8,000
• B)$60,500
• C)$10,500
• D)$12,000
• E)$4,000

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Definitions:

Litigation

The process of taking legal action or resolving disputes in court between individuals, businesses, or entities.

Arbitration

A form of alternative dispute resolution where a neutral third-party makes a binding decision to resolve a dispute, avoiding court litigation.

Binding

Describes an agreement, contract, or legal decision that must be adhered to by the parties involved.

Appealed

To apply to a higher court for a reversal of the decision of a lower court.