Problem #1 (6 points)

Let's pretend I am back in my Kraft Food days as a "young" Engineer. (young = quite a few years ago!). Here is the project I have been asked to resolve:

Replace an existing palletizer that has been in operation for 6 years. We paid $550,000 for the palletizer + 20% more to install it. It is being depreciated using a 7 year-recovery period under MACRS. The new palletizer I am looking at is state of the art but comes at a hefty cost of $725,000 + 20% to install it. Let's presume President Trump's new tax plan is not in effect yet so we are still held to a 35% tax rate. Our Net Working Capital is expected to increase by $20,000 due to pallet inventories which will naturally need to increase. A small business owner will pay us $90,000 for our older palletizer. What is the Initial investment we would need in order to make this capital project a reality?