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Question 13.EX.1: INITIAL CASH FLOW Suppose a company spends $1 million on res...

INITIAL CASH FLOW

Suppose a company spends $1 million on research and development of a new drug. The cost to buy the necessary equipment to produce and distribute the drug is $2.5 million. Working capital is expected to increase by $250,000 when the company embarks on the new product. What is the initial cash flow for this project?

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Cash Flow

Cost of equipment −$2,500,000

Increase in working capital −250,000

Initial cash flow −$2,750,000

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