Defines the opportunity cost of the remodeling project

Assignment Help Financial Management
Reference no: EM131888290

CrossTown Builders is considering remodeling an old building it currently owns. The building was purchased ten years ago for $1.2 million. Over the past ten years, the firm rented out the building and used the rent to pay off the mortgage. The building is now owned free and clear and has a current market value of $1.9 million. The company is considering remodeling the building into industrial-type apartments at an estimated cost of $1.6 million. The estimated present value of the future income from these apartments is $4.1 million. Which one of the following defines the opportunity cost of the remodeling project?

1. Cost of the remodeling

2. Current market value of the building plus the remodeling costs

3. Current market value of the building

4. Present value of the future income

5. Initial cost of the building plus the remodeling costs

Reference no: EM131888290

Questions Cloud

What is present value of all future earnings : What is the present value of all future earnings if the interest rate is 7%??
An individual opportunity cost : An individual's opportunity cost is 12%, and the individual is offered to make a one-time payment in exchange for receiving $100,000 exactly 4 years from now.
Recruiting firm that specializes in post college placement : Jobs R Us, Inc. is a recruiting firm that specializes in post – college placement in the finance industry.
Shopping product into heterogeneous shopping product : Is it possible to make a homogeneous shopping product into a heterogeneous shopping product?
Defines the opportunity cost of the remodeling project : Which one of the following defines the opportunity cost of the remodeling project?
What is present value of your winnings : If the appropriate interest rate is 6.4 percent, what is the present value of your winnings?
Risk analysis so important to the capital budgeting process : Why is risk analysis so important to the capital budgeting process? Which type of risk is easiest to measure in practice?
What is initial value of Gladstone equity without leverage : What is the initial value of Gladstone's equity without leverage? What is the yield-to-maturity of the debt. What is its expected return?
Decided to pay for your living expenses using credit card : You have just entered an MBA program and have decided to pay for your living expenses using a credit card that has no minimum monthly payment

Reviews

Write a Review

Financial Management Questions & Answers

  What is the equipment after-tax salvage value

After tax salvage value Karsted Air Services is now in the final year of a project. What is the equipment's after-tax salvage value?

  Compute the comparable financial ratios for next fiscal year

An analysis of last year's financial statements produced the following results. Use the following data to compute the comparable financial ratios for next fiscal year. Has the firm's financial position changed?

  What is the stock intrinsic value per share

Investors require a return of 12.5% per year to hold a stock. What is the stock’s intrinsic value per share?

  What is the probability that the outcome

When returns from a project can be assumed to be normally distributed, such as those shown in Figure 13-6 (represented by a symmetrical, bell-shaped curve), the areas under the curve can be determined from statistical tables based on standard deviati..

  The use of cash budgeting procedures

The use of cash budgeting procedures. The U.S. Treasury issues bonds where the return is indexed to the consumer price index. We should expect that these bonds, relative to other U.S. Treasury bonds, will have:

  Retained earnings in investments earning positive returns

Crosskey brothers is investing retained earnings in investments earning positive returns. These investments have resulted in growing EPS. Can one assume that common stock prices are also increasing are also a reult of these investments?

  The real world in order to apply the theory

Why are these assumptions so difficult to apply in the real world in order to apply the theory?

  What will be its optimal cash replenishment level

Watkins Resources faces a smooth annual demand for cash of $1.62 million, What will be its optimal cash replenishment level?

  What do you predict exchange rate will be in one year

What do you predict the exchange rate will be in five years? What do you predict the exchange rate will be in one year?

  What is the stocks intrinsic value

What is the stock’s intrinsic value if g= 20% for 3 years before achieving long-term growth of 5%. Its required rate of return is 10%. Last dividend was $2. What is its terminal price?

  What was the annual effective rate

You borrowed $45 from a friend and after ten months repaid $50.. What monthly interest rate did you pay?  (xx.xx%) What nominal annual interest rate did you pay?  (xx.xx%) What was the annual effective rate?

  Investment project provides cash inflows

An investment project provides cash inflows of $630 per year for eight years. What is the project payback period if the initial cost is $1,575? Payback period years what is the project payback period if the initial cost is $3,175?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd