A project has an installed cost of $500,000 and requires an additional working capital investment of...

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A project has an installed cost of $500,000 and requires anadditional working capital investment of $100,000. The projectreplaces an existing piece of equipment that has an estimatedsalvage value of $7000 and has a book value of $2000. The firm'smarginal tax rate is 40 percent. What is the Initial Outlay forthis project? Answer: IO = $595,000

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Cost of project		$ 5,00,000
Working capital investment		$ 1,00,000
After tax sale from existing piece of equipment		$ -5,000

Initial outlay for this project		$ 5,95,000

Working:

Sales value	a	$ 7,000
Book value	b	$ -2,000
Profit on sale	c=a+b	$ 5,000
Tax on profit	d=c*-40%	$ -2,000

After tax sale value	e=a+d	$ 5,000

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A project has an installed cost of $500,000 and requires anadditional working capital investment of $100,000. The projectreplaces an existing piece of equipment that has an estimatedsalvage value of $7000 and has a book value of $2000. The firm'smarginal tax rate is 40 percent. What is the Initial Outlay forthis project? Answer: IO = $595,000How do you calculate this problem?