Answer (A) is correct. The net initial investment is decreased by the proceeds from disposal of old equipment. If the salvage company’s offer exceeds the carrying amount of the equipment, an accrual-basis gain results. A loss on disposal provides a tax benefit because it reduces accrual-basis income. A gain, which increases accrual-basis income, results in a tax detriment. Thus, the net initial investment is less if the $800,000 offer exceeds the carrying amount.