Question

enny, Inc., is looking at setting up a new manufacturing plant in South Park. The company bought some land six years ago for $8.2 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facilities elsewhere. The land would net $11 million if it were sold today. The company now wants to build its new manufacturing plant on this land; the plant will cost $22.2 million to build, and the site requires $970,000 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project

Answer 1

Answer:

$3,41,70,000

Explanation:

Data provided as per the question below:-

Net sale Value of land = $1,10,00,000

Cost of grading of land = $9,70,000

Cost of building = $2,22,00,000

The computation of cash flow amount is shown below:-

Relevant cash flows = Net sale Value of land + Cost of grading of land + Cost of building

= $11,000,000 + $9,70,000  +  $2,22,00,000

= $3,41,70,000