Kilworth Plexiglass Inc. is looking to set up a new manufacturing plant to produ

Question

Kilworth Plexiglass Inc. is looking to set up a new manufacturing plant to produce surfboards. The company bought some land seven years ago for $7.2 million in anticipation of using it as a warehouse and distribution site, but the company decided to rent the facilities from a competitor instead. The land was appraised last week for $962,000. The company wants to build its new manúfacturing plant on this land; the plant will cost $25 million to build, and the site requires an additional $586,000 in grading before it will be suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project? Assume the tax rate of 30%. (Enter the answer in dollars.) Cash flow amount

Explanation / Answer

Cost of Land after Tax = $7,200,000 - ($962,000 x 30%) $6,911,400.00 Cost Of Equipment $25,000,000.00 Cost of Grading $586,000.00 Initial Investment $32,497,400.00 Cash Flow -$32,497,400.00

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