You have just completed a $24,000 feasibility study for a new coffee shop in som

Question

You have just completed a $24,000 feasibility study for a new coffee shop in some retail space you own. You bought the space two years ago for $96,000, and if you sold it today, you would net $120,000 after taxes. Outfitting the space for a coffee shop would require a capital expenditure of $33,000 plus an initial investment of $4,600 in inventory. What is the correct initial cash flow for your analysis of the coffee shop opportunity? ldentify the relevant incremental cash flows below: (Select all the choices that apply.) A. B. Price you paid for the space two years ago Amount you would net after taxes should you sell the space today. C. D. E. Capital expenditure to outfit the space. Feasibility study for the new coffee shop. Initial investment in inventory.

Explanation / Answer

Incremental Cash flow will include the followings.

Reason: Price you have already paid 2 year ago is not relevant as it is already spent and it is sunk cost similarly amount already paid for feasibility study for new coffee shop is also sunk cost as it is already spent. While calculating the incremental cash flow we have to consider the only inflow and outflow which is not already done.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.