Alien Corp. has been considering building an adult resort on a site originally p

Question

Alien Corp. has been considering building an adult resort on a site originally purchased as investment property. Alien paid a consultant $250,000 to determine whether the plan is feasible, and has recently found that the site is worth $2.5 MM. The original purchase price was $1 MM. If the expected outlay for building and staffing the resort is $4.5 MM, what is the Net Investment when running an NPV?

       a.

       $4.5 M

       b.

       $5.75 M

       c.

       $7.0 MM

       d.

       $7.25 MM

Explanation / Answer

Alien Corp. has been considering building an adult resort on a site originally purchased as investment property. Alien paid a consultant $250,000 to determine whether the plan is feasible, and has recently found that the site is worth $2.5 MM. The original purchase price was $1 MM. If the expected outlay for building and staffing the resort is $4.5 MM, what is the Net Investment when running an NPV?

Net Investment when running an NPV = FMV + expected outlay for building and staffing

Net Investment when running an NPV = $ 2.5 Million + $ 4.5 Million

Net Investment when running an NPV = $ 7.0 Million

Answer

c. $7.0 MM

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