Question

you are thinking about a project to expand your business. in order to start the project, you have to invest $200,000 in new equipment and $50,000 in working capital. you have to spend $15,000 for installation and $5,000 for shipping of the equipment. a few months ago, you spent $7,000 in consulting. the marginal tax rate of your company is 34%. what is the initial outlay of this project? round to the nearest penny. do not include a dollar sign in your answer. type the absolute value of the answer. (i.e. if your answer is -$20,000 since it is cost to replace, type 20000 as your answer.)

Answer 1

The initial outlay is the total upfront investment required for the project, excluding sunk costs like past consulting fees. It amounts to $270,000.

Step-by-step explanation:

The initial outlay for the business project can be calculated by adding the costs of new equipment, working capital, installation, shipping, and the past consulting expenses. However, the consulting expense is a sunk cost and is not considered in the initial outlay calculation.

Therefore, the total initial outlay is $270,000 (without considering tax implications). As the marginal tax rate is 34%, we do not include it in the initial outlay as these are not tax-deductible expenditures. The consulting fee is not included in the calculation as it is a sunk cost.