Sailcloth & More currently produces boat sails and is considering expanding its

Question

Sailcloth & More currently produces boat sails and is considering expanding its operations to include awnings for homes and travel trailers. The company owns land beside its current manufacturing facility that could be used for the expansion. The company bought this land 5 years ago at a cost of $495,000. At the time of purchase, the company paid $64,000 to level out the land so it would be suitable for future use. Today, the land is valued at $545,000. The company currently has some unused equipment on its books at a depreciated value of $66,000 – this equipment could be sold for $48,000. Alternatively, this equipment could be used for producing awnings if $28,000 is spent for modifications. Other new equipment costing $610,000 will also be required for the expansion. What is the amount of the initial cash flow for this expansion project?

Explanation / Answer

Initial Cash Flows Current value of land 545,000 Value of unused equipment           48,000 Modification of old equipment           28,000 New Equipment purchase         610,000 1,231,000

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