Problem 11-01 Investment Outlay

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $13 million, and production and sales will require an initial $4 million investment in net operating working capital. The company's tax rate is 40%.

1. What is the initial investment outlay? Write out your answer completely. For example, 2 million should be entered as 2,000,000. $
2. The company spent and expensed $150,000 on research related to the new project last year. Would this change your answer? -Select-YesNo

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 -Select-increase, decrease, not change

Problem 11-02 Operating Cash Flow

The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service:

Projected sales	$20 million
Operating costs (not including depreciation)	$9 million
Depreciation	$4 million
Interest expense	$3 million

The company faces a 40% tax rate. What is the project's operating cash flow for the first year (t = 1)? Write out your answer completely. For example, 2 million should be entered as 2,000,000.