Question

Kenny, Inc., is looking at setting up a new manufacturing plant in South Park. The company bought some land six years ago for $8 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 $10.8 million if it were sold today. The company now wants to build its new manufacturing plant on this land; the plant will cost $22 million to build, and the site requires $950,000 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

The Initial investment=33.750.000

Explanation:

The initial investment in fixed assets is the amount of money paid to start the project. We consider all the cost at "moment zero"

In this example ,

Land= we consider the actual price, $10.8 million

Plant=$22 million to build

$950,000 worth of grading

Initial investment=10.800.000+22.000.000+950.000=33.750.000