Marshall\'s & Co. purchased a corner lot in Eglon City five years ago at a cost

Question

Marshall's & Co. purchased a corner lot in Eglon City five years ago at a cost of $550,000. At the time of the purchase, the company spent $42,000 to grade the lot and another $3,700 to build a small building on the lot to house a parking lot attendant who has overseen the use of the lot for daily commuter parking. The lot now is appraised at $605,000. The company plans to build a new retail store on the lot. The building cost of the new retail store is estimated at $1,160,000. What amount should be used as the initial cash flow to build this new retail store?

Marshall's & Co. purchased a corner lot in Eglon City five years ago at a cost of $550,000. At the time of the purchase, the company spent $42,000 to grade the lot and another $3,700 to build a small building on the lot to house a parking lot attendant who has overseen the use of the lot for daily commuter parking. The lot now is appraised at $605,000. The company plans to build a new retail store on the lot. The building cost of the new retail store is estimated at $1,160,000. What amount should be used as the initial cash flow to build this new retail store?

Explanation / Answer

The projected cost of the building plus the opportunity cost of the land

1,160,000.+ 605,000= $1,765,000---correct answer

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