Question

Shelton Co. purchased a parcel of land six years ago for $855,500. At that time, the firm invested $127,000 in grading the site so that it would be usable. Since the firm wasn't ready to use the site itself at that time, it decided to lease the land for $45,000 a year. The company is now considering building a warehouse on the site as the rental lease is expiring. The current value of the land is $907,000. What value should be included in the initial cost of the warehouse project for the use of this land

Answer 1

$907,000

Step-by-step explanation:

We will only consider the relevant cost here in the warehouse project. As the purchase cost and grading cost has been incurred in the past due to that they are sunk cost, there is no relevance of these cost in this project. The lease is about to expire and has no value So we will only consider the current value of land as relevant and include it in the initial cost of the warehouse project for the use of this land.