Question

Jamestown Ltd. currently produces boat sails and is considering expanding its operations to include awnings for homes and travel trailers. The company owns land beside its current manufacturing facility that could be used for the expansion. The company bought this land ten years ago at a cost of $250,000. Today, the land is valued at $425,000. The grading and excavation work necessary to build on the land will cost $15,000. The company currently owns some unused equipment valued at $60,000. This equipment could be used for producing awnings if $5,000 is spent for equipment modifications. Other equipment costing $780,000 will also be required. What is the amount of the initial cash flow for this expansion project?

a. $800,000
b. $1,050,000
c. $1,110,000
d. $1,225,000
e. $1,285,000

Answer 1

e. $1,285,000

Step-by-step explanation:

The computation of the initial cash flow is shown below:

= Land current value + grading and excavation work cost + unused equipment cost + producing awnings cost + other equipment cost

= $425,000 + $15,000 + $60,000 + $5,000 + $780,000

= $1,285,000

The cost which is required for the expansion cost is considered

All other information which is given is not relevant. Hence, ignored it