Question

Parker & stone, inc., is looking at setting up a new manufacturing plant in south park to produce garden tools. the company bought some land six years 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 $4.3 million. the company wants to build its new manufacturing plant on this land; the plant will cost $11.5 million to build, and the site requires $670,000 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? (enter your answer in dollars, not millions of dollars,
e.g. 1,234,567.)

Answer 1

The initial investment is the total amount spent or the amount of cash outflow.

The initial investment here is -

Proper cash flow amount = Cost of land (present cost of land) + Cost of Plant + Cost of Grading

Proper cash flow amount = $ 4,300,000 + $ 11,500,000 + $ 670,000

Proper cash flow amount = $ 16,470,000