Ask Question
9 June, 22:26

Scottech is examining an investment opportunity that will involve buying $100,000 worth of equipment. They will need $10,000 in net working capital up front. Shipping will cost $5,000 and installation will cost $8,000. The firm paid a management consultant $4,000 to analyze this project, which is supposed to increase sales by $20,000 per year. If the firm accepts the project, they will have to spend $3,500 to train the employees to use the new equipment. The corporate tax rate is 21%. What is the initial outlay for the project?

a) $126,500

b) $130,500

c) $123,000

d) $150,500

e) $142,300

+1
Answers (1)
  1. 10 June, 01:40
    0
    113,000.

    Explanation:

    Let go through all the items to see whether we need to include them in the initial outlay or not.

    (1) $100,000 worth of equipment = > Yes

    (2) Shipping will cost $5,000 and installation will cost $8,000 = > Yes (Add to purchase price of equipment)

    (3) Paid a management consultant $4,000 to analyze this project = > No = >This is sunk cost (already incurred regardless of accept or reject the prject)

    (4) Increase sales by $20,000 per year = > No = > under operating cashflow.

    (5) $3,500 to train the employees to use the new equipment = > No = > under operating cashflow.

    So, total initial outlay = 100,000 + 5,000 + 8,000 = 113,000.
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Scottech is examining an investment opportunity that will involve buying $100,000 worth of equipment. They will need $10,000 in net working ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers