Tennen Induatries is comidering an expansion. The necessary tquipment mould be purchated for s10 milion and aili be fuliy degreciated at the tima of gurchase, and the expansien would require an additional $3 mison investment in net operating working capital, The tax rate is 25 . a. What is the initial investment butiby after bonus depredation is considered? Write cut your answer completely. For example, 13 million should be entered as 13,000,000. Round your answer to the nearest doliar. Enter your answer as a positive value. 15 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 cath flow. Hence, it should not be included in the analyis. II. Yes, the cost of research is an incremental cast fow and should be included in the analysis. III. Yes, but only the tax effect of the research expenses should be included in the analysis. IV. No, last year's expend ture should be treated as a terminal cash flow and deait with at the end of the project's life. Hence, it should not be inchuced in the 4. No, last year's expend ture is considered an opportunity cost and does not represent an incremental cash flow. Hence, it should not be inctuded in the intial ifvestment outlay. analysis. c. Suppose the cempany plans to use a bullaing that it owns to house the project. The building couid be sold for $2 minion ahter taxes and real estale commissions. How would thut fact affect your answer? 1. The potential sale of the building represents an opportunity cost of conductang the project in that building. Therefore, the possible after-tax sale price must be charged against the aroject as a cost. II. The potential sale of the building represents an opportunity cost of conducting the project in that bulding. Therefore, the possible belore tax sale price must be charged against the project as a cost. III. The potentiat sale of the buiding represents an externality and therefore should not be charged againu the project. IV. The potential sale of the building represents a reat option and therefore should be charged against the project. V. The potential sale of the building represents a real option and therefore should not be charged against the project