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A successful sushi chain in Hong Kong spent $500,000 to conduct a study on whether to open a location in the United States. The study
A successful sushi chain in Hong Kong spent $500,000 to conduct a study on whether to open a location in the United States. The study showed that the best place for the company to open its first location would be in Chicago. When conducting its capital budgeting analysis, how should the company account for the cost of the study when estimating the amount of the initial investment that the new store will require? The company should include the cost of the study in the amount of the initial investment. The company should ignore the cost of the study The company should include half of the cost of the study in the initial investment. A large soft-drink company currently produces regular cola and diet cola. It is considering introducing a new soft drink that tastes like regular cola but has zero calories like the diet cola. The new zero-calorie drink that tastes like regular cola is most likely to produce externality. Marston Manufacturing Company is considering a project that requires an investment in new equipment of $4,000,000, with an additional $200,000 in shipping and installation costs. Marston estimates that its accounts receivable and inventories need to increase by $800,000 to support the new project, some of which is financed by a $320,000 increase in spontaneous liabilities (accounts payable and accruals). The total cost of Marston's new equipment is ______ and consists of the price of the new equipment plus the _____ In contrast, Marston's initial net investment outlay is_____. Suppose Marston's new equipment is expected to sell for $1,000,000 at the end of its four-year useful life, and at the same time, the firm expects to recover all of its net working capital investment. The company chose to use straight-line depreciation, and the new equipment was fully depreciated by the end of its useful life. If the firm's tax rate is 40%, what is the project's total termination cash flow? $1,000,000 $600,000 $880,000 $1, 080,000
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