Tannen Industries is considering an expansion. The necessary equipment would be purchased for $15 million, and the expansion would require an additional $2 million imvestment in net eperating working capital, The tax rate is 40%. a. What is the initial investment outiay? Write out your answer completely. For example, 13 million should be entered as 13,000,000. Round your anseer to the nearest dallac Enter vour answer as a positive value. s. b. The company spent and expensed $20,000 on research related to the project last year. Would this change your answer? Explain. 1. No, last year's expenditure is considered a sunk cost and does not represent an incremental cash fow. Hence, it should not be included in the analysis. 11. Yes, the cont of research is an incremental cash flow and should be included in the anslysis. IIt. Yes, but only the tax effect of the research expenses should be included in the analysis. NV. No, last year's expenditure should be treated as a terminal cash flew and dealt with at the end of the project's life. Hence, it should not be inciuded in the initial investment cutiry: V. No, last year's expendeure is considered an opportunity cost and does not represent an incrementai cash fiow. Hence, it should not be included in the analysts. c. The company plans to vie a bulding it owns to house the project. The buliding could be sold for $5 million after taxes and real estate commissians. How would that fact affect your antwer? 1. The potential sole of the buliding represents an opportunity cost of conducting the project in that building. Therefore, the possibte after tax sale price must be charged agalast the project as a cost. 11. The potential sale of the building represents an opportunity cost of conducting the project in that building. Therefore, the possible before-tax sale price must be charged against the project as a cost. Itt. The potentiat sale of the bualding represents an externality and therefore should not be charged against the project. TW. The potential sale of the bulding represents a real option and therefore sheuid be charged against the project. V. The posential sale of the buliding represents a real option and therefore should not be charged against the project