1. Jefferson Industries is considering an expansion. The necessary equipment would be purchased for $6 million, and it would also require an additional $2.5 million investment in working capital. The tax rate is 40 percent. Last year, the company spent and expensed $400,000 on research related to the project. The company plans to house the project in an unused building it owns. If the building were sold, it would net $1.6 million after taxes and real estate commissions. What is the initial investment outlay for this project?
a. $10.1 million
b. $6.1 million
c. $10.5 million
d. $5.1 million
e. $8.9 million
2. Kennedy Production Co. is now in the final year of a project. The equipment originally cost $15 million, of which 70 percent has been depreciated. Kennedy can sell the used equipment today for $6.6 million, and its tax rate is 25 percent. What is the equipment’s after-tax net salvage value?
a. $7,125,000
b. $6,075,000
c. $4,950,000
d. $7,575,000
e. $525,000