Question

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company's tax rate is 40%. What is the initial investment outlay? Write out your answer completely. For example, 2 million should be entered as 2,000,000.

Answer 1

The initial investment outlay for Talbot Industries to launch the new product is $22,000,000.

Step-by-step explanation:

The initial investment outlay consists of the cost of the new manufacturing equipment and the investment in net operating working capital. The cost of the equipment is $17 million, and the investment in net operating working capital is $5 million. The net operating working capital is the difference between current assets (such as inventory and accounts receivable) and current liabilities (such as accounts payable and accrued expenses).

To calculate the initial investment outlay, we add the cost of the equipment and the investment in net operating working capital:

Initial Investment Outlay = Cost of Equipment + Investment in Net Operating Working Capital

Initial Investment Outlay = $17,000,000 + $5,000,000

Initial Investment Outlay = $22,000,000

Therefore, the initial investment outlay for Talbot Industries to launch the new product is $22,000,000.