REQUIRED INVESTMENT Tannen Industries is considering an expansion. The necessary equipment would be purchased for $8 million,...

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REQUIRED INVESTMENT
Tannen Industries is considering an expansion. The necessaryequipment would be purchased for $8 million, and the expansionwould require an additional $4 million investment in net operatingworking capital. The tax rate is 40%.
What is the initial investment outlay? Round your answer to thenearest dollar. Write out your answer completely. For example, 13million should be entered as 13,000,000.
$

The company spent and expensed $20,000 on research related tothe project last year. Would this change your answer? Why?
No, last year's expenditure is considered a sunk cost and doesnot represent an incremental cash flow. Hence, it should not beincluded in the analysis.
Yes, the cost of research is an incremental cash flow andshould be included in the analysis.
Yes, but only the tax effect of the research expenses should beincluded in the analysis.
No, last year's expenditure should be treated as a terminalcash flow and dealt with at the end of the project's life. Hence,it should not be included in the initial investment outlay.
No, last year's expenditure is considered as an opportunitycost and does not represent an incremental cash flow. Hence, itshould not be included in the analysis

The company plans to use a building that it owns to house theproject. The building could be sold for $5 million after taxes andreal estate commissions. How would that fact affect your answer?
The potential sale of the building represents an opportunitycost of conducting the project in that building. Therefore, thepossible proceeds after taxes and commissions must be chargedagainst the project as a cost.
The potential sale of the building represents an opportunitycost of conducting the project in that building. Therefore, thepossible proceeds before taxes and commissions must be chargedagainst the project as a cost.
The potential sale of the building represents an externalityand therefore should not be charged against the project.
The potential sale of the building represents a real option andtherefore should be charged against the project.
The potential sale of the building represents a real option andtherefore should not be charged against the project.

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REQUIRED INVESTMENTTannen Industries is considering an expansion. The necessaryequipment would be purchased for $8 million, and the expansionwould require an additional $4 million investment in net operatingworking capital. The tax rate is 40%.What is the initial investment outlay? Round your answer to thenearest dollar. Write out your answer completely. For example, 13million should be entered as 13,000,000.$The company spent and expensed $20,000 on research related tothe project last year. Would this change your answer? Why?No, last year's expenditure is considered a sunk cost and doesnot represent an incremental cash flow. Hence, it should not beincluded in the analysis.Yes, the cost of research is an incremental cash flow andshould be included in the analysis.Yes, but only the tax effect of the research expenses should beincluded in the analysis.No, last year's expenditure should be treated as a terminalcash flow and dealt with at the end of the project's life. Hence,it should not be included in the initial investment outlay.No, last year's expenditure is considered as an opportunitycost and does not represent an incremental cash flow. Hence, itshould not be included in the analysisThe company plans to use a building that it owns to house theproject. The building could be sold for $5 million after taxes andreal estate commissions. How would that fact affect your answer?The potential sale of the building represents an opportunitycost of conducting the project in that building. Therefore, thepossible proceeds after taxes and commissions must be chargedagainst the project as a cost.The potential sale of the building represents an opportunitycost of conducting the project in that building. Therefore, thepossible proceeds before taxes and commissions must be chargedagainst the project as a cost.The potential sale of the building represents an externalityand therefore should not be charged against the project.The potential sale of the building represents a real option andtherefore should be charged against the project.The potential sale of the building represents a real option andtherefore should not be charged against the project.