Talbot Industries is considering launching the new product. The new manufacturing equipment will cost $17 million, and production and sales will need an initial $5 million investment in net operating working capital. The company's tax rate is 40%.
a. Determine the initial investment outlay?
b. The company spent and expensed $150,000 upon research related to the new product last year. Would this change your answer? Explain.
c. Rather than build the new manufacturing facility, the company plans to install equipment in building it owns but isn't now using. The building could be sold for $1.5 million after taxes and real estate commissions. How would this affect your answer?