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mnen Industries is considering on expansion. The necessary equipment would be purchased for $10 million and will be fully deprecated at the time of purchase, and the expansion uld require an additional st million investment in net operating working capital. The tax rate is 23 a what is the initial livestment outloy after bonis depreciation in considered write out your lower completely. For example, 13 milion should be entered as 13,000,000 Round your answer to the nearest doftar. Enter your answer as a positive value AZ b. The company spent and expensed $25,000 on research related to the project last year. Would this change your answer? Explain 1. No, last year's expenditure considered a sunk cost and son not represent an incremental cash flow. Hence, it should not be included in the analyses 11. Yes, the cost of research is an incremental cash flow and should be included in the analysis III. Yes, but only the tax effect of the research expenses should be included in the analysis TV NO, fast year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, I should not be included in the init Investment outlay No, last year's expenditure is considered an opportunity cost and does not represent an incremental cash tow. Hence, it should not be induded in the analysis i Suppose the company plans to use a building that it owns to house the project. The building could be sold for $3 million after taxes and real estate commissions. How would that fact affect your answer? 1. The potential sale of the building represents an opportunity cost of conducting the project in that building. Therefore, the possible after tax sale price must be charged against the project as a cost. II. 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. III. The potential sale of the building represents an externality and therefore should not be charged against the project. IV. The potential sale of the building represents a real 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 AB Sic

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