Question

Marshall's purchased a corner lot five years ago at a cost of $498,000 and then spent $63,500 on grading and drainage so the lot could be used for storing outdoor inventory. The lot was recently appraised at $610,000. The company now wants to build a new retail store on the site. The building cost is estimated at $1.1 million. What amount should be used as the initial cash outflow for this building project? Multiple Choice $1,661,500 $1,100,000 $1,208,635 $1,710,000 $1,498,000

Answer 1

Initial Cash Outflow = Building Cost + Opportunity Cost(Recently Appraised Value)

= $1,100,000 + $610,000 = $1,710,000

Hence, 4th Option is correct.