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 $780,000. The lot was recently appraised at $842,000. At the time of the purchase, the company spent $58,000 to grade the lot and another $4,800 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 company now wants to build a new retail store on the site. The building cost is estimated at $1,270,000. What amount should be used as the initial cash flow for this building project?

Marshall's & Co. purchased a corner lot in Eglon City five years ago at a cost of $780,000. The lot was recently appraised at $842,000. At the time of the purchase, the company spent $58,000 to grade the lot and another $4,800 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 company now wants to build a new retail store on the site. The building cost is estimated at $1,270,000. What amount should be used as the initial cash flow for this building project?

Explanation / Answer

a, $2,112,000

Initial Cash Flow = Building Cost + Appraised Price of Lot

Initial Cash Flow = 1,270,000 + 842,000 = $2,112,000

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