Question

Question 14 5 pts The Green Tomato purchased a parcel of land six years ago for $389,900. At that time, the firm invested $128,000 grading the site so that it would be usable. Since the firm wasn't ready to use the site itself at that time, it decided to lease the land for $48,000 a year. The Green Tomato is now considering building a hotel on the site as the rental lease is expiring. The current value of the land is $415,000. The firm has no loans or mortgages secured by the property. What value should be included in the initial cost of the hotel project for the use of this land? $48,000 $389,900 $101,900 $415,000 $229,000

Answer 1

The value that should be included in the initial cost of the hotel project is the opportunity cost that will be lost if the hotel is built on the land which has a value of $ 415,000. The cost of $ 389,900 and $ 128,000 are not the relevant cost and thus shall not be included.

So the value that should be included in the initial cost of the hotel project for the use of land will be $ 415,000

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