FIN 111 WALTON MEDICAL LABORATORY/TUTORIALOUTLET DOT COM FIN 111 WALTON MEDICAL LABORATORY/TUTORIALOUTLET D | Page 2

followed by an additional cash outlay of $20,000 at the end of the first
year.
Walton predicted revenue of $600,000 during the first year and
$1,200,000 each year thereafter. She calculated labor expenses,
including a salary for her equal to what she was now earning, of
$300,000 in the first year and $480,000 each year thereafter. She
estimated a supplies expense of $120,000 in the first year and
$190,000 each year thereafter. She estimated overhead expense, other
than depreciation, of $100,000 a year. Looking ahead, Walton
estimated that the equipment would have a negligible value in 10
years while the building would have lost one-fourth of its value and
the land would still be worth $100,000. She guessed that recovery of
working capital would provide a non-taxable cash inflow of $40,000
in 10 years.
Walton tentatively discussed the project with several senior
physicians to see what would be required. They viewed this as an
investment of moderate risk and indicated that they would want a 12
percent return. She estimated that the laboratory will be in a 28
percent tax bracket. Is this project worthwhile?