(11–1)

Investment Outlay Talbot Industries is considering an expansion project. The necessary equipment could be purchased for $9 million, and the project would also require an initial

$3 million investment in net operating working capital. The company’s tax rate is 40%.

a. What is the initial investment outlay?

b. The company spent and expensed $50,000 on research related to the project last year. Would this change your answer? Explain.

c. The company plans to house the project in a building it owns but is not now using. The building could be sold for $1 million after taxes and real estate commissions.

How would this affect your answer?