Question

"Anne's Bakery purchased a lot in Oil City 6 years ago at a cost of $302,000. Today, that lot has a market value of $365,000. At the time of the purchase, the company spent $15,000 to level the lot and another $20,000 to install storm drains. The company now wants to build a new facility on that site. The building cost is estimated at $1.51 million. What amount should be used as the initial cash flow for this project

Answer 1

$1,875,000

Step-by-step explanation:

Relevant data provided

Estimated building cost = $1,510,000

Market value = $365,000

The computation of initial cash flow is shown below:-

Initial cash flow = Estimated building cost + Market value

= $1,510,000 + $365,000

= $1,875,000

Therefore for computing the initial cash flow we simply added the estimated building cost with market value and we have not considered rest of the value as it is a extra cost.