Question

Jerryworld, Inc., is looking at setting up a new manufacturing plant in Dallas to produce footballs. The company bought some land six years ago for $5.2 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 $4.6 million. The company wants to build its new manufacturing plant on this land; the plant will cost $10.4 million to build, and the site requires $840,000 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 proper cash flow amount to use as the initial investment in fixed assets is $15,840,000

Step-by-step explanation:

The computation of the proper cash flow amount to use as the initial investment in fixed assets is shown below:

= (Net amount + cost of the plant + grading cost)

= ($4.6 million + $10.4 million + $0.84 million )

= $15,840,000

Hence, the proper cash flow amount to use as the initial investment in fixed assets is $15,840,000