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Unformatted text preview: price of the asset, adjusted for any
change in net working capital, is equal to the initial investment. Installed Cost of New Asset
As shown in Table 8.2, the installed cost of the new asset is found by adding the
cost of the new asset to its installation costs. The cost of new asset is the net outflow that its acquisition requires. Usually, we are concerned with the acquisition
of a fixed asset for which a definite purchase price is paid. Installation costs are
any added costs that are necessary to place an asset into operation. The Internal
Revenue Service (IRS) requires the firm to add installation costs to the purchase
price of an asset to determine its depreciable value, which is expensed over a
period of years. The installed cost of new asset, calculated by adding the cost of
the asset to its installation costs, equals its depreciable value. After-Tax Proceeds from Sale of Old Asset
Table 8.2 shows that the after-tax proceeds from sale of old asset decrease the
firm’s initial investment in the new asset. These proceeds are the diff...
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- Fall '13