A. An answer of $4.9 million results from using 30% of sales as the increase in net working capital, which is incorrect.

B. An answer of $3.4 million results from subtracting the net working capital increase from the initial investment in new equipment and plant modifications, which is incorrect.

C. The investment in net working capital will be 20% of sales (30% of sales invested in current assets less 10% of sales in current liabilities). Thus, the increase in working capital required will be $3,000,000 × .20, or $600,000. The investment in new equipment and plant modifications is $4,000,000. The total investment is therefore $4,600,000.

D. An answer of $4.3 million results from using 10% of sales as the increase in net working capital, which is incorrect.