The first cash flow estimate is the initial investment in the project. For projects that require designing or modifying equipment and buildings, engineering estimates may be available. Engineers can examine preliminary designs or architectural sketches and estimate the quantities of various materials needed. Estimates of purchases, transportation costs, and construction expenses can be developed based on current market prices. Another means of estimating the acquisition or construction cost of a project is to solicit bids from various construction or equipment manufacturers based upon a preliminary set of design specifications. An approximate cost can be determined through discussions with bidding firms. If the firm is large enough that it has an in-house engineering or real estate acquisition staff, this expertise also can be tapped to estimate relevant costs. The expense of developing cost estimates is a sunk cost. That money is spent and gone whether or not the proposed project is accepted; it should not be included in the project’s cash flow estimates. However, the initial outlay estimate must consider opportunity costs if the project will use property or equipment presently owned by the firm. The investment cost estimate may have to be adjusted if the project involves replacing one asset with another, presumably newer and more costefficient model. If the old asset is going to be sold, the investment outlay must be reduced by the after-tax proceeds from the sale of the old asset. Finally, even though a project’s initial outlay may directly involve property and equipment (investing cash flows), it also may have implications for net working capital (operating cash flows). For example, if a project affects the firm’s production process, inventory levels may change. New raw materials needs may affect accounts payable. These kinds of expected changes in net working capital must be included as part of the initial outlay.