Wk 1- Chapter 11 Problems

# Wk 1- Chapter 11 Problems - (11-1 Talbot Industries is...

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Value after depreciation = 1-.75 x \$12 million = \$3 million Profit= \$4 million - \$3 million = \$1 million Tax= \$1 million x .40 = \$400,000 (11-1) Talbot Industries is considering launching a new product. The new manufacturing equipment will cost \$17 million, and p sales will require an initial \$5 million investment in net operating working capital. The company’s tax rate is 40% a. Talbot Ind's initial investment outlay = new equipment cost + working capital = \$17 million + \$5 million = \$22 million b. The \$150,000 spent and expensed on research is considered a sunk cost because it happened last year.We should only cons investments and cashflows as only these are relevant. What Talbot Ind. spent in the previous years are not relevant. So the tota outlay remains the same as the initial investment outlay at \$22 million. So the answer is No it would not change. c. Would afect it by raising it an additional \$1.5 million. \$22 million + \$1.5 million = \$ 23.5 million (11-3) Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost \$12 million, of whic

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