HOW TO SOLVE Investment Outlay

Problem 11-01
Investment Outlay

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $15 million, and production and sales will require an initial $2 million investment in net operating working capital. The company’s tax rate is 35%.

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

b. The company spent and expensed $150,000 on research related to the new project last year. Would this change your answer?
c. 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    .

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