You have just completed a $17,000 feasibility study for a new cofee shop in some
ID: 2623458 • Letter: Y
Question
You have just completed a $17,000 feasibility study for a new cofee shop in some retail space you own. You bought the space two years ago for $98,000 and if you sold it today, you would net $110,000 after taxes. Outfitting the space for a coffee shop would require a capital expenditure of $35,000 plus an initial investment of $5,000 in inventory. What is the correct initial cash flow for your analysist of the coffee shop opportunity?
Oppurtunity Cost
Capital Expenditure
Change in Net Working capital
Free Cash Flow
Explanation / Answer
Oppurtunity Cost from sale of space = $110,000
capital expenditure =$35,000
increase in inventory = $5000
intial cash out flow =$150000
the $17000 cost of feasibility study is not included beacuase this is a sunk cost
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