Initial investment in fixed assets when evaluating project

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Reference no: EM132063486

1. Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land 5 years ago for $7 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $9.2 million. The company wants to build its new manufacturing plant on this land; the plant will cost $17.2 million to build, and the site requires $828,000 worth of grading before it is suitable for construction. Required : What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project? $28,589,400 $26,400,000 $23,938,880 $27,228,000 $25,572,000

2. Consider an asset that costs $404,800 and is depreciated straight-line to zero over its 6-year tax life. The asset is to be used in a 3-year project; at the end of the project, the asset can be sold for $50,600. Required : If the relevant tax rate is 30 percent, what is the aftertax cash flow from the sale of this asset? (Do not round your intermediate calculations.) $430,112.00 $91,333.00 $35,420.00 $100,947.00 $96,140.00

Reference no: EM132063486

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