SciTE Industries purchased a corner lot in five years ago at a cost of $692 thou

Question

SciTE Industries purchased a corner lot in five years ago at a cost of $692 thousand. The lot was recently appraised at $860 thousand. At the time of the purchase, the company spent $40 thousand to grade the lot and another $16 thousand 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 $1.28 million. What amount should be used as the initial cash flow for this building project?

Explanation / Answer

Amount spent on garding & making abuilding is sunk cost & is not relevant. SO Current appraised cost of $860,000 + Bldg cost 1.28M is to be used as Initial CF

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