Investment Outlay

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $11 million, and production and sales will require an initial $1 million investment in net operating working capital. The company's tax rate is 40%.

a. What is the initial investment outlay? Enter your answer as a positive value. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Round your answer to the nearest dollar.

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

(YES/NO) , last year's $150,000 expenditure (IS/NOT) considered a sunk cost and (DOES/DOESN'T) represent an incremental cash flow.

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 (INCREASE/DECREASE/NOT CHANGE)