You have just completed a $20,000 feasibility study for a new coffee shop in som

Question

You have just completed a $20,000 feasibility study for a new coffee shop in some retail space you own. You bought the space two years ago for $95,000, and if you sold it today, you would net $111,000 after taxes. Outfitting the space for a coffee shop would require a capital expenditure of $25,000 plus an initial investment of $4,600 in inventory. What is the correct initial cash flow for your analysis of the coffee shop opportunity? Identify the relevant incremental cash flows below: (Select all the choices that apply) A. Price you paid for the space two years ago. B. Amount you would net after taxes should you sell the space today. C. Feasibility study for the new coffee shop. iD. Capital expenditure to outfit the space. E. Initial investment in inventory Calculate the initial cash flow below: (Select from the drop-down menus and round to the nearest dollar.) Capital Expenditure (outfit of space) Capital Expenditure (price of space) Change in Net Working Capital Feasibility Study Cost Opportunity Cost $| -$ 3 1

Explanation / Answer

Your recognition of relevant cash flows are accurate.

Find below the calculation of initial cash flow below:

1.capital expenditure (outfit of space) $25,000 2.Change in net working capital (i.e inventory cost) $4,600 3. Opportunity cost ($111,000 that would have been received) $111,000 4. Free cash flow $140,600

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