Please Provide help with this Question Kelly's Corner Bakery purchased a lot in Oil City sixyears ago at a cost of $278,000. Today, that lot hasa market value of $264,000. At the time of purchase,the company spent $6,000 to level the lot andanother $8,000 to install storm drains. The companynow wants to build a new facility on that site. Thebuilding cost is estimated at $1.03 million. Whatamount should be used as the initial cash flow forthis project?

Ans) Initial Cash flow Amount Cash flow for building $ 1,030,000Market value of the Lot$…

Answered: Kelly's Corner Bakery purchased a lot…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 14P

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Kelly's Corner Bakery purchased a lot in Oil City 6 years ago at a cost of $302,000. Today, that lot has a market value of $340,000. At the time of the purchase, the company spent $15,000 to level the lot and another $20,000 to install storm drains. The company now wants to build a new facility on that site. The building cost is estimated at $1.51 million. What amount should be used as the initial cash flow for this project?
Kelly’s Corner Bakery purchased a lot in Oil City 6 years ago at a cost of $302,000. Today, that lot has a book value of zero and market value of $340,000. At the time of the purchase, the company spent $15,000 to level the lot and another $20,000 to install storm drains. The company now wants to build a new facility on that site. The building cost is estimated at $1.51 million, and will be depreciated using the straight-line method to a $400,000 book value over the 6-year life of the project. The company is evaluates this new facility will increase annual sales by $1.2 million and annual cash costs by $0.5 million. Based on past information, the company believes that it can sell the facility for $800,000 when they are done with it in 6 years. The applicable tax rate is 32 percent. What is the net present value of the project if the required rate of return is 10 percent?
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