Question

P10-3 (similar to) Question Help Opportunity cost. Revolution Records will build a new recording studio on a vacant lot next to the operations center. The land was purchased five years ago for $450,000. Today, the value of the land has appreciated to $790,000. Revolution Records did not consider the value of the land in its NPV calculations for the studio project (it had already spent the money to acquire the land long before this project was considered). The NPV of the recording studio is $560,000. Should Revolution Records have considered the land as part of the cash flow of the recording studio? If yes, what value should be used, $450,000 or $790,000? How will the value affect the project? Should Revolution Records have considered the land as part of the cash flow of the recording studio? (Select the best response.) O A. Yes. O B. No.

Answer 1

rate positively ..

Ans 1	correct answer is option : Yes
	Land should have been considered for the NPV analysis as this is the opportunity cost firm is incurring.
Ans 2	Value should be used =			790000
Ans 3	revised NPV of the project = 560000-790000					-230000
	Project will have negative NPV