Jefferson Industries is considering an expansion. The necessary equipment would
ID: 2802956 • Letter: J
Question
Jefferson Industries is considering an expansion. The necessary equipment would be purchased for $6 million, and it would also require an additional $2.5 million investment in working capital. The tax rate is 40 percent. Last year, the company spent and expensed $400,000 on research related to the project. The company plans to house the project in an unused building it owns. If the building were sold, it would net $1.6 million after taxes and real estate commissions. What is the initial investment outlay for this project?
a. $10.1 million
b. $6.1 million
c. $10.5 million
d. $5.1 million
e. $8.9 million
Jefferson Industries is considering an expansion. The necessary equipment would be purchased for $6 million, and it would also require an additional $2.5 million investment in working capital. The tax rate is 40 percent. Last year, the company spent and expensed $400,000 on research related to the project. The company plans to house the project in an unused building it owns. If the building were sold, it would net $1.6 million after taxes and real estate commissions. What is the initial investment outlay for this project?
a. $10.1 million
b. $6.1 million
c. $10.5 million
d. $5.1 million
e. $8.9 million
Explanation / Answer
A.$10.1 million.
Initial investment outlay = equipment cost + working capital investment+ opportunity cost of building. (After tax cash flow)
=>$6 m ,+$2.5 m +$1.6m
=>$10.1m.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.