Kenny, Inc., is looking at setting up a new manufacturing plant in South Park. T
ID: 2733404 • Letter: K
Question
Kenny, Inc., is looking at setting up a new manufacturing plant in South Park. The company bought some land six years ago for $8 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facilities elsewhere. The land would net $10 8 million if it were sold today. The company now wants to build its new manufacturing plant on this land the plant will cost $22 million to build, and the site requires $950,000 worth of grading before it is suitable for construction. Required: What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)Explanation / Answer
Proper cash flow amount to use as the initial investment in fixed assets in evaluating the project are;-
Particulars
Amount(in $)
Reasoning
1
Sale value of land
$10,800,000
Opportunity cost of cash inflow if sold today
2
Site preparation
$950,000
Cost to prepare land to build new manufacturing plant
3
Cost of New manufacturing plant
$22,000,000
Initial investment cost of plant
4
Total cost
$33,750,000
Relavant cost of initial investmnet
Particulars
Amount(in $)
Reasoning
1
Sale value of land
$10,800,000
Opportunity cost of cash inflow if sold today
2
Site preparation
$950,000
Cost to prepare land to build new manufacturing plant
3
Cost of New manufacturing plant
$22,000,000
Initial investment cost of plant
4
Total cost
$33,750,000
Relavant cost of initial investmnet
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