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 $650,000. The lot was recently appraised at $695,000. At the time of the purchase, the company spent $31,000 to grade the lot and another $3,500 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 $1,140,000. What amount should be used as the initial cash flow for this building project?

Explanation / Answer

Building cost $ 1,140,000 Lot present realisable value $     695,000 Initial cash flows $ 1,835,000

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