Dilwater Furniture purchased a corner lot in Pittsburg five years ago at a cost
ID: 2646274 • Letter: D
Question
Dilwater Furniture purchased a corner lot in Pittsburg five years ago at a cost of $890,000. The lot was recently appraised at $1,070,000. At the time of the purchase, the company spent $80,000 to grade the lot and another $120,000 to pave the lot for commuter parking. The company now wants to build a new retail store on the site. The building cost is estimated at $1.8 million. What amount should be used as the initial cash flow for this building project?
a $3,070,000 b $1,070,000 c $1,800,000 d $2,870,000 e $2,890,000Explanation / Answer
Answer:
Initial cash outflow shall be taken as follows:
Current market value of the lot = $1070000
Add: Building cost = $1800000
Hence Total Initial Cost for the building project = $2870000
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