US Airways owns a piece of land near the Pittsburgh International Airport. The l

Question

US Airways owns a piece of land near the Pittsburgh International Airport. The land originally cost US Airways $375,000. The airline is considering building a new training center on this land. US Airways determined that the proposal the new facility is acceptable if the original cost of the land is used in the analysis, but the proposal does not meet the airline s project acceptance criteria if the land cost is above $850,000. A developer recently offered US Airways $2.5 million for the land. Should US Airways build the training facility at this location?

Explanation / Answer

Since the developer recently offered $2.5 million for the land, this means the land cost would be at least $2.5 million. Since this is above the stated project criteria cost of $850,000 then US Airways should not build the training facility at this location. The original cost of the land in this case is a red herring, and should not factor into the analysis since there is more recent and therefore more accurate data available (developer's offer).

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