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Kenny, Inc
Kenny, Inc., is looking at setting up a new manufacturing plant in South Park. The company bought some land six years ago for $8.3 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facilities elsewhere. The land would net $11.1 million if it were sold today. The company now wants to build its new manufacturing plant on this land; the plant will cost $22.3 million to build, and the site requires-$980,00,0 worth of grading before it is suitable for construction.
What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567.)
Expert Solution
Computation of Cash Flow:
Cash flow = Opportunity costs of Land + Cost of Land + Grading of Land
Cash flow = $11,100,000 + $22,300,000 + $980,000
Cash flow = $34,380,000
So, proper cash flow amount to use as the initial investment in fixed assets when evaluating this project is $34,380,000.
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