#26 Suppose that a company purchased some land 5 years ago for $1,000,000 and th

Question

#26

Suppose that a company purchased some land 5 years ago for $1,000,000 and they now want to use this land to build a new manufacturing plant. Recently they received an offer from a commercial real estate firm to purchase the land for $1,500,000. However, the company prefers to build a plant on that land instead, assuming the project is profitable. To build the plant, they must first remove some trees and an existing structure at a cost of $500,000. The construction of the plant itself will cost $3,000,000. What is the proper cash flow to use as the initial investment for this project?

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

$4,500,000

$5,000,000

$5,500,000

$6,000,000

a.

$500,000

b.

$1,000,000

c.

$1,500,000

d.

$2,000,000

e.

$2,500,000

f.

$3,000,000

g.

$3,500,000

h.

$4,000,000

i.

$4,500,000

j.

$5,000,000

k.

$5,500,000

l.

$6,000,000

Explanation / Answer

Present resale value of land $ 1,500,000 Expenses of removing trees and existing structures $     500,000 Construction cost of plant $ 3,000,000 Initial investment for project $ 5,000,000

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