The firm has total current assets of 920000 and total

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Unformatted text preview: 40,000 Marketable securities 0 Inventories 10,000 Accounts payable 90,000 Notes payable Accounts receivable Cash 0 150,000 15,000 a. Using the information given, calculate the change, if any, in net working capital that is expected to result from the proposed replacement action. b. Explain why a change in these current accounts would be relevant in determining the initial investment for the proposed capital expenditure. c. Would the change in net working capital enter into any of the other cash flow components that make up the relevant cash flows? Explain. LG4 8–11 Calculating initial investment Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of $325,000. The system can be sold today for $200,000. It is being depreciated using MACRS and a 5-year recovery period (see Table 3.2, page 100). A new computer system will cost $500,000 to purchase and install. Replacement of the computer system would not involve any change in net worki...
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This document was uploaded on 01/19/2014.

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