Question

Sondland, Inc. currently produces gadgets and is considering expanding its operations. The company owns land beside its current manufacturing facility that could be used for the expansion. The company bought this land ten years ago at a cost of $352,000 and spent $35,000 on grading and excavation costs at that time. Today, the land is valued at $573,000. The company currently has some unused equipment that it currently owns with a current market value of $79,000. This equipment could be used for production if $21,200 is spent for equipment modifications. Other equipment costing $88,600 will be required. What is the amount of the initial cash flow for this expansion project?

$732,800

$743,200

$750,800

$761,800

$772,400

Answer 1

Initial Cash Flow = Value of Land today + Current market value of Assets + Modification Cost + Cost of the other required equipment

= $573,000 + $79,000 + $21,200 + $88,600 = $761,800

So, 4th option is correct.