XYZ-ABC Partners, LLC, is looking at setting up a new plant in Florida to produce lawn mowers. The company bought some land 1 year ago for $4 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $6 million. The company wants to build its new plant on this land; the plant will cost $12 million to build, and the site requires $2 million worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?

XYZ-ABC Partners, LLC, is looking at setting up a new plant in Florida to produce lawn mowers. The company bought some land 1 year ago for $4 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $6 million. The company wants to build its new plant on this land; the plant will cost $12 million to build, and the site requires $2 million worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 14P

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