Question

Alpaca Inc. purchased a corner lot in 2010 at a cost of $500,000. The lot was recently appraised at $800,000. At the time of the purchase, the company spent $25,000 to grade the lot and has been leasing this place as a parking lot for $10,000 a year. The renewal for the lease contract was not expected to expire until 2030. The company now wants to build a new retail store on the site. The building cost is estimated at $75,000. * Choose all values to be considered and included in calculating the free cash flows for capital budgeting.

1.Purchase price of the corner lot @ $500,000

2Appraisal of $800,000 Grading @ $25,000

3.Parking lot lease @ $10,000 per year

4.Cost to build a new retail store @ $75,000

Answer 1