Answer:
$1,180,000
Explanation:
The net initial investment will include the following components:
1. Fixed capital investment = Purchase cost of the equiment = $800,000 + $240,000 = $1,040,000
2. Increase in working capital of $48,000
3. Sales proceeds of existing machine of $75,000
4. Tax on gain/loss of sales on existing machine = (75,000 - 125,000) x 34% = $- 17,000
So, total net initial investment is $1,040,000 + $48,000 + $75,000 - (-$17,000) = $1,180,000
