You have just completed a $21,000 feasibility study for a new coffee shop in som

Question

You have just completed a $21,000 feasibility study for a new coffee shop in some retail space you own. You bought the space two years ago for $96,000, and if you sold it today, you would net $110,000 after taxes. Outfitting the space for a coffee shop would require a capital expenditure of $28,000 plus an initial investment of S4,500 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. B. C. Initial investment in inv Feasibility study for the new coffee shop. Amount you would net after taxes should you sell the space today. D. Capital expenditure to outfit the space. E. Price you paid for the space two years ago.

Explanation / Answer

a) A real option is a right but not obligation to undertake some business decision after the project has been implemented. The only option that Billingham have with the XC-900 is whether to expand production or not starting year 3. Therefore, option B is correct.

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