amira Baradararn CH 9 u save & Exit fsarm 5. Problem 9-1 Relevant Cash Flows [LO

Question

amira Baradararn CH 9 u save & Exit fsarm 5. Problem 9-1 Relevant Cash Flows [LO 1 Kenny, Inc, is looking at setting up a new plant on this land; the plant wil cost S22.3 millon to build, and the site requires S980 000 worth of grading belore Do not round intermediate calculations and round your answer to the nearest whole number,-932. Cash ow uring plant in South Park. The company bought some land six years ago for $8.3 million in anticipation of using it as a warehouse and is suitable for construction. s the proper cash fov amount to use RS the initial investment in red assets when e al ating this prope? Enter your answer in dollars, not millions of dollars, eg, 1 234 567 Hints References eBook &Resources; Hint #1

Explanation / Answer

The proper cash flow to use as the initial investment in fixed assets when evaluating the project is as under, Cost of new plant -$22,300,000 Cost of site grading -$960,000 Cash Flow for Initial Investment -$23,260,000 Cost of land bought six years ago is irrelevant in decision making as it is a sunk cost. Opportunity cost of gain on sale of land if it would have sold today doesn't involve cash flow ,hence irrelevant.

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