Investment Outlay Talbot Industries is considering launching a new product. The

Question

Investment Outlay

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $10 million, and production and sales will require an initial $5 million investment in net operating working capital. The company's tax rate is 40%.

What is the initial investment outlay? Write out your answer completely. For example, 2 million should be entered as 2,000,000.
$   

The company spent and expensed $150,000 on research related to the project last year. Would this change your answer?
-Select-YesNoItem 2

Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. How would this affect your answer?
The project's cost will -Select-increase decrease not change Item 3 .

Explanation / Answer

1)

Initial investment outlay = Investment in Equipment + Investment in Working capital

Initial investment outlay = 10,000,000 + 5,000,000

Initial investment outlay = $15,000,000

2) There is no change in the investment outlay, as research cost would not be included in the initial investments. Hence initial investment is 15,000,000

3) initial outlay if the building is not sold, that opportunity loss:

15000000+1500000=16,500,000

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