(Solved) J.B. Enterprises purchased a new molding machine for $85,000. The company paid $8,000 for shipping ...

J.B. Enterprises purchased a new molding machine for $85,000. The company paid $8,000 for shipping and another $7,000 to get the machine integrated with the company's existing assets. J.B. must maintain a supply of special lubricating oil just in case the machine breaks down. The company purchased a supply of oil for $4,000. The machine is to be depreciated on a straight-line basis over its expected useful life of 8 years. Which of the following statements concerning the change in working capital is MOST accurate?
A) The $4,000 paid for oil is added to the initial outlay, offset by the tax savings $1600.
B) The $4,000 may be expensed each year over the life of the project as part of the incremental free cash flows.
C) The $4,000 is added to the initial outlay and recaptured during the terminal year, hence having no impact on the projects NPV or IRR.
D) Even if the $4,000 is fully recovered at the end of the project, the project's NPV and IRR will be lower if the change in working capital is included in the analysis.

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J.B. Enterprises purchased a new molding machine for $85,000. The company paid $8,000 for shipping ...

Foundations of Finance

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