Kenny, Inc., is looking at setting up a new manufacturing plant in South Park. T
ID: 2763009 • 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?
Explanation / Answer
Cash flow amount to use as the initial investment in fixed assets = $10.8 million + $22 million+ $0.95 million
= $33.75 million
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