Huntington Inc. is considering production of a new product. Explain how each of the following should be treated in evaluating whether to go ahead…

Huntington Inc. is considering production of a new product. Explain how each of the following should be treated in evaluating whether to go ahead with the project.

a. The company will produce the new product in a vacant building that was used to produce another product until last year. The building could be sold or leased to another company.

b. During the past one year, the company incurred $3 million in R&D expenses for the product. It has paid $2.5 million of this but the remaining $500,000 is yet to be paid.

c. If the project is accepted, the company must invest $2 million in working capital. These funds are expected to be recovered at the end of the project’s economic life.