Question

Marshall's & Co. purchased a corner lot in Eglon City five years ago at a cost of $690,000. The lot was recently appraised at $747,000. At the time of the purchase, the company spent $35,000 to grade the lot and another $4,700 to build a small building on the lot to house a parking lot attendant who has overseen the use of the lot for daily commuter parking. The company now wants to build a new retail store on the site. The building cost is estimated at $1,260,000. What amount should be used as the initial cash flow for this building project?

$1,950,000
$1,958,200
$2,015,200
$2,007,000
$2,010,500

Answer 1

To calculate the initial cash flow for the building project, subtract the current value of the lot from the total costs.

Step-by-step explanation:

To calculate the initial cash flow for the building project, we need to consider the costs and the current value of the lot. The costs include the purchase price of the lot ($690,000), the grading cost ($35,000), and the building cost ($1,260,000). The current value of the lot is $747,000. To calculate the initial cash flow, subtract the current value of the lot from the total costs:

Initial Cash Flow = Total Costs - Current Value of the Lot

Initial Cash Flow = $2,015,000 - $747,000
Initial Cash Flow = $1,268,000

Therefore, the correct answer is $1,268,000.