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 $580,000. The lot was recently appraised at $632,000. At the time of the purchase, the company spent $45,000 to grade the lot and another $4,600 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 $1,250,000. What amount should be used as the initial cash flow for this building project?

$1,886,500

$1,891,100

$1,882,000

$1,839,100

$1,830,000

Marshall's & Co. purchased a corner lot in Eglon City five years ago at a cost of $580,000. The lot was recently appraised at $632,000. At the time of the purchase, the company spent $45,000 to grade the lot and another $4,600 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 $1,250,000. What amount should be used as the initial cash flow for this building project?

Explanation / Answer

The Initial Cash flow for the Bilding project is $ 1,882,000.

The Initial cash flow for the building project = Projected cost of the building + opportunity cost of the land

The Initial cash flow for the building project = 1,250,000 + 632,000

The Initial cash flow for the building project = $ 1,882,000

1,200,000 + 810,000 = $2,010,000

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