Company is looking at setting up a new plant. The company bought some land a dec

Question

Company is looking at setting up a new plant. The company bought some land a decade ago for $40 million. The land was appraised recently for $30 million. Company wants to build the new plant on this land; the plant will cost $50 million to build, and the site requires $3 million worth of grading before it is suitable for construction. What should be the proper “incremental cash flow” amount to use as the initial investment (CF0)? a. $43 million. b. $60 million. c. $63 million. d. $83 million. e. $93 million.

Explanation / Answer

Initial investment under Incremental cash flow:

Initial Investment = Increase in value of land +Construction of Plant + Grading cost

= $(30+50+3)Millions =$83 Millions

Option d.$83 million is the correct answer.

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