How do adjust the project year zero cash flow

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You are putting together the cash flows for a proposed project. The project will use facilities which were renovated at a cost of $50MM a year ago. You estimate that the market value of the facilities just prior to the renovation was $30MM and that the renovated facilities could be sold today for $65MM.

Problem 1: How do you adjust the project's Year 0 cash flow to take into account the space that it is using?

1. Reduce the Year 0 cash flow (make the cash flow more negative) by $30MM.

2. Reduce the Year 0 cash flow (make the cash flow more negative) by $50MM.

3. Reduce the Year 0 cash flow (make the cash flow more negative) by $80MM. ($30MM + $50MM).

4. Reduce the Year 0 cash flow (make the cash flow more negative) by $65MM.

5. Reduce the Year 0 cash flow by zero. (Do not make this cash flow more negative.) These are all sunk costs that do not affect the cash flows used in project valuation analysis.

Reference no: EM132969405

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