Question

Beckingham Sports is an American sporting goods company. Based on $400,000 spent on market research and $600,000 spent on consulting prior to the project, the firm can increase its annual operating cash flow by $3,000,000 if they begin selling overseas. While the firm was thinking about the expansion, it spent $2,000,000 to purchase land for a new factory. However, someone is making an offer to pay Beckingham Sports $3,000,000 for the purchased land meant for a new factory. Which of the following is the relevant to include capital budgeting?

$400,000 for the market study

$600,000 for the consulting

$2,000,000 to purchase the new land

$3,000,000 of the offer price of the land.

None of the above.

Answer 1

Answer:

$3,000,000 of the offer price of the land.

Explanation:

Capital budgeting refers to the analyzes of the budgeting of capital assets whether the assets of the company generated higher returns or not. The capital assets can be in terms of machinery, plants, replacement of an asset, research and development, etc

It takes the decision with regard whether the particular asset should be purchased or not

Since in the question it is given that $3,000,000 is spent on the purchase of land for a new factory and the same is to be considered

While all the other information is not relevant. Hence, ignored it