(Relevant cash flows) Kenny, Inc is looking at setting up a new manufacturing plant in South Park. The company bought some land six years ago for $9.5 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facilitie elsewhere. The land would net $8.5 million if it were sold today. The company now wants to buld its new manufacturing plant on this land; the plant will cost $2.6 million to build, and the site requires $700,000 worth of grading before it is suitable for construction. When evaluating this project, the proper cash flow amount to use as the initial investment in fixed assets is $ million.

(Relevant cash flows) Kenny, Inc is looking at setting up a new manufacturing plant in South Park. The company bought some land six years ago for $9.5 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facilitie elsewhere. The land would net $8.5 million if it were sold today. The company now wants to buld its new manufacturing plant on this land; the plant will cost $2.6 million to build, and the site requires $700,000 worth of grading before it is suitable for construction. When evaluating this project, the proper cash flow amount to use as the initial investment in fixed assets is $ million.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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America Inc., is considering the addition of a new maintenance services division. Opening the division will require a new building, staff, and equipment. The proposed plan involves purchasing land that is currently selling for $750,000. The price of constructing the building on this land is $4.5 million and should be finished before operations begin in year 1. The building will be depreciated straight-line to a book value of $500,000 over 20 years. New equipment will cost $200,000 upfront, and will be depreciated straight line to zero over 4 years. An HR team will need to be brought on for hiring new staff. They estimate that the upfront cost of hiring will be $210,000. In addition, a sales forecast has already been formed for the project and the incurred fee for this service is $90,000. The team forecasts sales of $900,000, $800,000, $600,000, and $300,000 for years 1 through 4 respectively. In each year, inventory equal to one tenth of the current year’s revenue will be required.…
Vigour Pharmaceuticals Ltd. is considering investing in a new production line for its pain-reliever medicine for individuals who suffer from cardio vascular diseases. The company has to invest in equipment which costs $2,500,000 and will be depreciated under the MACRS system for a 5-year asset class. It is expected to have a scrap value of $700,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Vigour Pharmaceuticals expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new pain-reliever. Expected annual…
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