Talbot Industries is considering launching a new product. The new manufacturing

Question

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $16 million, and production and sales will require an initial $2 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?
_________________   

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 _________________ .

Explanation / Answer

1)

Initial investment outlay = -new manufacturing equipment - investment in net operating working capital

Initial investment outlay = -16000000-2000000

Initial investment outlay = -18,000,000

2)

No

Initial investment outlay = -18,000,000 would remain same

3)

Project's cost will increase by 1,500,000

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