Question

Nelson Mfg. owns a manufacturing facility that is currently sitting idle. The facility is located on a piece of land that originally cost $159,000. The facility itself cost $1,390,000 to build. As of now, the book value of the land and the facility are $159,000 and $458,000, respectively. The firm owes no debt on either the land or the facility at the present time. The firm received a bid of $1,700,000 for the land and facility last week. The firm's management rejected this bid even though they were told that it is a reasonable offer in today's market. If the firm was to consider using this land and facility in a new project, what cost, if any, should it include in the project analysis

Answer 1

Answer: $1700000

Explanation:

If the firm was to consider using the land and facility in a new project, the cost that should be included I the project analysis should be the cost of land and the building facility that was given in the question. This is so because that is the relevant cost to be included in the project analysis. The relevant cost is $,1700,000 which is the bid received for land and building by the firm.