Question

Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $4.6 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $4.9 million. The company wants to build its new manufacturing plant on this land; the plant will cost $12.1 million to build, and the site requires $730,000 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

$17,730,000

Step-by-step explanation:

The computation of the proper cash flow amount is shown below:

= Land sale value + new manufacturing plant on this land + grading cost before it is suitable for construction

= $4,900,000 + $12,100,000 + $730,000

= $17,730,000

We simply added the land sale value, new manufacturing plant on this land, and the grading cost before it is suitable for construction so that the correct amount can come

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