Response to the following questions:
1. Explain how net operating working capital is recovered at the end of a project's life, and why it is included in a capital budgeting analysis.
2. Define (a) simulation analysis, (b) scenario analysis, and (c) sensitivity analysis.
3. Johnson Industries is considering an expansion project. The necessary equipment could be purchased for $9 million, and the project would also require an initial $3 million investment in net operating working capital. The company's tax rate is 40 percent. What is the project's initial investment outlay?