J. Carrey LLC (JCLL) is considering an expansion. The necessary equipment would

Question

J. Carrey LLC (JCLL) is considering an expansion. The necessary equipment would be purchased for 9 million, and the expansion would require an additional 3 mil/ion investment in net operating working capital. The tax rate is 40%. Questions: Please show all calculations. What is the initial investment outlay? The company spent and expensed 50,000 on research related to the project last year. Would this change your answer? Explain. The company plans to use a building that it owns to house the project. The building could be sold for 1 million after taxes and real estate commissions. How would that fact affect your answer?

Explanation / Answer

Initial cash outlay = $9 million+$3 million = $12 million Costs incurred in past are sunk costs, sunk costs are irrelevant for decision making. Hence, my answer will be still $12 million This $1 million is opportunity cash flows; this should be considered for decision making. Hence, my answer will be $13 million.

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