Question

Teradene Corporation purchased land as a factory site and contracted with Maxtor Construction to construct a...

Teradene Corporation purchased land as a factory site and contracted with Maxtor Construction to construct a factory. Teradene made the following expenditures related to the acquisition of the land, building, and equipment for the factory:

Purchase price of the land

$

1,290,000

Demolition and removal of old building

89,000

Clearing and grading the land before construction

195,000

Various closing costs in connection with acquiring the land

51,000

Architect's fee for the plans for the new building

59,000

Payments to Maxtor for building construction

3,340,000

Equipment purchased

905,000

Freight charges on equipment

41,000

Trees, plants, and other landscaping

54,000

Installation of a sprinkler system for the landscaping

5,900

Cost to build special platforms and install wiring for the equipment

21,000

Cost of trial runs to ensure proper installation of the equipment

7,900

Fire and theft insurance on the factory for the first year of use

33,000

  
In addition to the above expenditures, Teradene purchased four forklifts from Caterpillar. In payment, Teradene paid $25,000 cash and signed a noninterest-bearing note requiring the payment of $79,000 in one year. An interest rate of 6% properly reflects the time value of money for this type of loan.

Required:
Determine the initial valuation of each of the assets Teradene acquired in the above transactions. (Round your answers to the nearest whole dollars.)

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Homework Answers

Answer #1
Initial Valuation
Land 1625000
Building 3399000
Equipment 974900
Land improvements 59900
Fork lifts 99529
Prepaid insurance 33000

Working:

Land
Purchase price of the land 1290000
Demolition and removal of old building 89000
Clearing and grading the land 195000
Closing costs 51000
Total cost $ 1625000
Building
Architect's fee 59000
Payments to Maxtor 3340000
Total cost $ 3399000
Equipment
Purchase price 905000
Freight charges 41000
Cost to build special platforms and wiring 21000
Cost of trial runs 7900
Total cost $ 974900
Land Improvements
Trees, plants, and other landscaping 54000
Installation of sprinkler system 5900
Total cost $ 59900

Fork Lifts: $25000 + ($79000 x 0.94340) = $25000 + $74528.60 = $99528.60 = $99529

PV factor for n=1, i=6%

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