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XYZ Company is considering the purchase of a new piece of equipment and has...

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Accounting

XYZ Company is considering the purchase of a new piece of
equipment and has gathered thePresent Value of a Lump-Sum
Present Value of an Annuity following information about
the purchase:
Initial investment ........................ $210,000
Annual cost savings ....................... $ 50,000
Salvage value in 7 years .................. $ 7,000
Overhaul of engine needed in 4 years ...... $ 20,000
Working capital needed now ................?
Cost of capital ...........................5%
Life of project ...........................7 years
Income tax rate ...........................30%
If the new equipment is purchased, then the machine that
is currently being used can be sold at the time of buying
the new equipment for $12,000.
The working capital needed now will be released for
investment elsewhere at the end of the seven years.
The net present value of the new equipment is $37,169.
Calculate the amount of the working capital needed now.
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