ABC Store is run by Kiki Mini, whose personal marginal tax rate is 40%. Kiki is considering the purchase of a new key-cutting machine that costs $30,000. As the new machine will cut a larger range of keys than Kiki’s old machine she will need to carry a larger number of ‘blank’ keys on hand, a total of approximately $1,000 worth of ‘blanks’. Over its 10 year estimated life, the new machine will generate extra sales of about $4,000 per year, as well as labour-cost, wastage and defective keys savings of $3,000 p.a. The old key-cutting machine (which will be replaced by the new machine) was purchased 5 years ago for $20,000 and also has a 10-year expected life. Kiki has been depreciating the old machine at 10% p.a. (straight-line basis, down to an expected salvage value of zero). her cousin has told Kiki that he would pay $8,000 to buy the old machine if she wants to replace it now. During the period for which Kiki has been using the old machine she has carried an average amount of $700 worth of blank keys. Kiki has just returned from a $400 trip to Melbourne to have a demonstration of the new machine, which she believes that had to spend to make an informed decision about the purchase of the new machine. Could you show the initial outlay amount included in a capital budgeting evaluation to purchase the new key-cutting machine.

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