Question

Psyman Inc. is considering an expansion. The necessary equipment would be purchased for $10 million, and it would also require an additional $2 million investment in working capital. The tax rate is 40 percent. What is the initial investment outlay

Answer 1

Answer:

$12 million

Explanation:

Given that,

Cost of equipment purchased = $10 million

Requirement of an additional investment in working capital = $2 million

Tax rate = 40 percent

Here, the initial investment outlay is the combination of amount necessary to purchased the equipment and the additional investment in the working capital.

Initial investment outlay:

=  Cost of equipment purchased + Additional investment

= $10 million + $2 million

= $12 million