A company currently produces boat sails and is considering expanding its operati
ID: 2659260 • Letter: A
Question
A company currently produces boat sails and is considering expanding its operations to include awnings for homes and travel trailers. The company owns land beside its current manufacturing facility that could be used for the expansion. The company bought this land 5 years ago at a cost of $319,000. At the time of purchase, the company paid $24,000 to level out the land so it would be suitable for future use. Today, the land is valued at $295,000. The company has some unused equipment that it currently owns valued at $38,000. This equipment could be used for producing awnings if $12,000 is spent for equipment modifications. Other equipment costing $490,000 will also be required. What is the amount of the initial cash flow for this expansion project? MUST SHOW WORK FOR BEST ANSWER
A.
-$785,000
B.
-$823,000
C.
-$835,000
D.
-$859,000
Please show work with formulas, thank you!
A.
-$785,000
B.
-$823,000
C.
-$835,000
D.
-$859,000
A company currently produces boat sails and is considering expanding its operations to include awnings for homes and travel trailers. The company owns land beside its current manufacturing facility that could be used for the expansion. The company bought this land 5 years ago at a cost of $319,000. At the time of purchase, the company paid $24,000 to level out the land so it would be suitable for future use. Today, the land is valued at $295,000. The company has some unused equipment that it currently owns valued at $38,000. This equipment could be used for producing awnings if $12,000 is spent for equipment modifications. Other equipment costing $490,000 will also be required. What is the amount of the initial cash flow for this expansion project? MUST SHOW WORK FOR BEST ANSWERExplanation / Answer
B.
-$823,000
The initial cash flow is the sum of all the expenditures of the company initially.
Land purchase - $319,000
Leveling out the land - $24,000
Equipment purchased - $38,000 (we are not told how much the company paid for it initially, so we can only use its present value to determine the start up costs)
Awning modifications - $12,000
Additional equipment - $490,000
-319,000 + (-24,000) + (-38,000) + (-12,000) + (-490,000) = -$823,000
Note they are all negative since they are losses/costs to the company, not profits.
B.
-$823,000
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