Question

Kenny, Inc. is looking at setting up a new manufacturing plan in South Park. The company bought some land six years ago for $5.3 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 $7.4 million if it were sold today. The company now want to build its new plant on this land. The plant will cost $26.5 mill to build, and the site requires $1.32 mill 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 in millions i.e. 12.63 for $12.63 million)

Answer 1

$35.22 million

Step-by-step explanation:

Calculation to determine the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project

Value of land today $7.4 million

Add Cost of Building $26.5 million

Add Grading cost $1.32 million

Cash flow $35.22 million

($7.4 million+$26.5 million+$1.32 million)

Therefore the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project is $35.22 million