Question

Kenny, Inc., is looking at setting up a new manufacturing plant in South Park. The company bought some land six years ago for $5.3 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facilities elsewhere. The land would net $7.7 million if it were sold today. The company now wants to build its new manufacturing plant on this land; the plant will cost $29.3 million to build, and the site requires $1.41 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? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

initial investment

Answer 1

Initial investment in fixed asset for evaluation of the project is $ 38,410,000

Explanation:

Initial investment = Current market price of land + Grading expenses + Cost of plant

                                = $ 7,700,000 + $ 1,410,000 + $ 29,300,000

                                = $ 38,410,000