Little King acquires land and an old building across the street from Northwestern State University. Little King intends to remove the old building and build a new sandwich shop on the land. What costs might the firm incur to make the land ready for its intended use?

Little King acquires land and an old building across the street from Northwestern State University. Little King intends to remove the old building and build a new sandwich shop on the land. What costs might the firm incur to make the land ready for its intended use?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

2. A warehouse owned by Martha and used in her business (i.e., to store inventory) is being condemned by the city to provide a right-of-way for a highway. The warehouse has appreciated by $180,000 based on Martha’s estimate of its fair market value. In the negotiations, the city is offering $35,000 less than what Martha believes the property is worth. Alan, a real estate broker, has offered to purchase Martha’s property for $20,000 more than the city’s offer. Martha plans to invest the proceeds she will receive in an office building she will lease to various tenants. Identify the relevant tax issues for Martha. Would the answer in part (1) change if Martha’s warehouse was property being held for investment rather than being used in her business? Explain.
MIRR unequal lives. Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow of the restaurant is an initial cost of $1,470,000 with cash flows over the next six years of $240,000 (year one). $280,000 (year two), $280,000 (years three through five), and $1,700,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,450,000 with cash flows over the next four years of $360,000 (years one through three) and $3,120,000 (year four), at which point Grady plans to sell the facility. The appropriate discount rate for the restaurant is 9.5% and the appropriate discount rate for the sports facility is 11.5%. What are the MIRRS for the Grady Enterprises projects? What are the MIRRS when you adjust for the unequal lives? Do the MIRR adjusted for unequal lives…
AG also owns a building which it bought in 2010 at a cost of $1.3 million. The current market price of the building is $3.0 million. AG management argues that we should not charge depreciation on the building because the asset has appreciated in value, not depreciated. What is your advice to AG? Justify your answer.
note: can you help me answer the question for s, t and u? Lee Wah Press (LWP) is considering a leasing arrangement to finance some special printing machines that it needs for production during the next three years. A planned change in the company’s production technology will make the new machine obsolete after 3 years. LWP will depreciate the new machine on a straight-line basis towards zero salvage value. The firm can borrow the installed cost of $480,000, at 10% interest per annum, calculated on an annual reducing balance, to buy the new machine or make three equal beginning-of-year lease payments of $210,000 should it decide to take up lease financing. Annual maintenance costs associated with ownership, payable at the end of year, are estimated at $25,000. Annual insurance premium associated with the purchase is estimated to be at $6,000, payment is on a cash-before-cover basis. Should LWP opt for lease financing, all other costs will be borne by the lessor. LWP tax rate is 40%.…
Pomeral & Sons currently produces patio umbrellas and is considering expanding its operations to include tents for automobiles and travel trailers. The company owns land beside its current manufacturing facility that could be used for the expansion. The company bought this land 5 years ago at a cost of $310,981. At the time of purchase, the company paid $33,000 to level out the land so it would be suitable for future use. Today, the land is valued at $295,000. The company has some unused equipment that it owns currently valued at $39,765. This equipment could be used for producing tents if $12,000 is spent for equipment modifications. Other equipment costing $487,162 will also be required. What is the amount of the initial cash flow for this expansion project? (express your answer as a positive number)
The City of Prattville donated some land with a few old manufacturing buildings on it to the Laurel Corporation that was only worth $50,000. The Laurel Corporation owns the television show, Home Renovations that builds beautiful condominiums from old manufacturing buildings and then sells them to young wealthy accountants. They film in Prattville for two months investing 2 million dollars in the complex. What basis does Laurel Corporation have in the condominium complex?
Acme Investors is considering the purchase of the undeveloped Baker Tract of land. It is currently zoned for agricultural use. If purchased, however, Acme must decide how to have the property rezoned for commercial use and then how to develop the site. Based on its market study, Acme has made estimates for the two uses that it deems possible, that is, office or retail. Based on its estimates, the land could be developed as follows: Rentable square feet Rents per square foot Operating expense ratio Average growth in NOI per annum Required return (r) Total construction cost per square foot Office 100,000 $ 42.00 Required: Which would be the highest and best use of this site? Which would be the highest and best use of this site? 40% 3% 13% $118 Retail 80,000 $ 52.50 50% 3% 14% $118
Raul Martinas, a professor of languages at Eastern University, owns a small office building adjacent to the university campus. He acquired the property 10 years ago at a total cost of $608,500-that is, $78,500 for the land and $530,000 for the building. He has just received an offer from a realty company that wants to purchase the property: however, the property has been a good source of income over the years, and so Martinas is unsure whether he should keep it or sell it. His alternatives are as follows: a Keep the property. Martinas's accountant has kept careful records of the income realized from the property over the past 10 years. These records indicate the following annual revenues and expenses: Martinas makes a $13,250 mortgage payment each year on the property The mortgage will be paid off in eight more years. He has been depredating the building by the straight-line method, assuming a salvage value of $79,500 for the building, which he still thinks is an appropriate figure. He…
Sharkey’s Fun Center contains a number of electronic games as well as a miniature golf course and various rides located outside the building. Paul Sharkey, the owner, would like to construct a water slide on one portion of his property. Mr. Sharkey gathered the following information about the slide: Water slide equipment could be purchased and installed at a cost of $345,000. According to the manufacturer, the slide would be usable for 12 years after which it would have no salvage value. Mr. Sharkey would use straight-line depreciation on the slide equipment. To make room for the water slide, several rides would be dismantled and sold. These rides are fully depreciated, but they could be sold for $117,500 to an amusement park in a nearby city. Mr. Sharkey concluded that about 50,000 more people would use the water slide each year than have been using the rides. The admission price would be $3.80 per person (the same price the Fun Center has been charging for the old rides). Based on…
The Crying Onion purchased a parcel of land six years ago for $299, 500 . At that time, the firm invested $64,000 grading the site so that it would be usable. Since the firm wasn't ready to use the site itself at that time, it decided to lease the land for $28,000 a year. The company is now considering building a hotel on the site as the rental lease is expiring. The current value of the land is $355,000. The firm has no loans or mortgages secured by the property. What value should be included in the initial cost of the hotel project for the use of this land? Group of answer choices $299,500 $355,000 $363,500 $419, 000