You are considering expanding your product line, which currently consists of skateboards, to include petrol-powered skateboards, and
Question:
You are considering expanding your product line, which currently consists of skateboards, to include petrol-powered skateboards, and you feel you can sell 11 000 of these per year for 10 years (after which time this project is expected to shut down with solar-powered skateboards taking over). The petrol skateboards would sell for $70 each with variable costs of$50 for each one produced, and annual fixed costs (excluding depreciation) associated with production would be$50 000.
In addition, there would be a $1,300,000 initial expenditure associated with the purchase of new production equipment. It is assumed that this initial expenditure will be depreciated using the simplified straight-line method down to zero over10 years. The project will also require a one-time initial investment of $ 40 000 in net working capital associated with inventory, and this working capital investment will be recovered when the project is shut down. Finally, assume that the firm's marginal tax rate is 30%.
The initial cash outlay associated with this project is $___________