Acompany is looking to purchase and replace a fixed asset for $235,000. it will sell the asset that will be replaced for $47,000 but will incur a $15,000 gain upon that sale. it must also commit $30,000 of working-capital to the investment. the firm's tax rate is 35%. what is the amount of the relevant initial investment?

-$193,250

Explanation:

Relevant Initial Investment:

= New Investment + Gains × (-Tax rate) + Salvage Value

= -235,000 + 15,000 × (-35%) + 47,000

=  -$235,000 - $5,250 + $47,000

= -$193,250

Net working capital is a cash outflow at the beginning of the project but it will be recovered at the end.

So, it is not considered as initial investment.

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