Which of the following statements is/are correct? L The cost of the survey (E150,000), the cost of the market research (E140,000) and the foregone rent (El10,000 per year) should not be included in the calculations. II. The cost of demolition (£230,000) should be included in the calculations, but the lost sales to Black (E25,000 per year) should not be included because they are not sales of Granger. IIL Since the factory will be depreciated over five years, a figure of E540,000 per year should be included in the cash flow figures. IV. Granger does not need to take account of inflation to calculate annual cash flows as long as it uses the real rate of return. Select en answer and submit. For keyboard navigation, use the up down arrow keys to select en answer. a None of the statements are correct land Ill only Il and II only IV only and IV only
Granger, a division of a company, is considering a five-year investment opportunity which will require building a new factory which will cost £3.2 million and which will have scrap value of £0.5m. Granger has undertaken a survey to determine whether land it currently ows will be suitable land on which to build the factory. The survey cost £150,000. The land currently contains a building which will have to be demolished at a cost of £230,000 if the company decides to go ahead with the project. The current building is rented out on a five-year contract by Granger to Black, another division of the same company, at an annual rent of £l10,000. If Granger goes ahead with the project, Black will renta building from another company at the same cost. If Granger builds the factory it expects sales of £1.1 million next year and expects the sales receipts to increase by 5% per year after the first year due to inflation. This estimate of sales is the result of
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