truman industried is considering an expansion. the necessary equipment would be

Question

truman industried is considering an expansion. the necessary equipment would be purchased for $9 million, and the expansion would require an additional $ 3 million investment in woring capital the tax rate is 40%
a. what is the initial investment outlay?
b.the company spent adn expensed $50,000 on research related to the project last year. Would this change your answer? explain.
c.the company plans to use another building that it owns to house the project. the building could be sold for $1million after taxes and real estate commissions. How would that affect your anwer?

Explanation / Answer

a. Total outley = Innitial investment + Required working capital + Other capital expense = 9 + 3 = 12 Million Total outley = Innitial investment + Required working capital + Other capital expense = 9 + 3 = 12 Million
b. Note: The cost of research is a necessary part of acquiring the equipment. It is a capitalized expenditure because its cost is being added to the cost of the asset. Total outley = Innitial investment + Required working capital + Other capital expense = 9 + 3 + 0.05 = 12.05 Million Total outley = Innitial investment + Required working capital + Other capital expense = 9 + 3 + 0.05 = 12.05 Million
c. Actually we are investing on equipment. If we sold building, it won't effect initial equipment outley. Because these are not related assets. Thank you.... Total outley = Innitial investment + Required working capital + Other capital expense = 9 + 3 = 12 Million

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