Kenny, inc., is looking at setting up a new manufacturing plant in south park. the company bought some land six years ago for $7.3 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 $10.1 million if it were sold today. the company now wants to build its new manufacturing plant on this land; the plant will cost $21.3 million to build, and the site requires $880,000 worth of grading before it is suitable for construction.

required: what is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project? (do not include the dollar sign ($). enter your answer in dollars (e. g., 1,234,567), not millions of dollars.)

The proper cash flow amount to use as the initial investment in fixed assets when evaluating this project will be $32,280,000.

Explanation:

Proper year zero cash flow to use in evaluating this project = After-tax value of the land + Cost of manufacturing new plant + Grading Expenses

= $10,100,000 + $21,300,000 + $880,000

= $32,280,000

Therefore, The proper cash flow amount to use as the initial investment in fixed assets when evaluating this project will be $32,280,000.

NOTE :

- The after-tax value of the land of $10,100,000 should be considered since it is an opportunity cost of capital if the land is used rather than sold.

- The cash outlay of $21,300,000 for the plant cost and the $880,000 for the grading costs are the part of the initial investment in year 0.

a. $48.75

is the answer to your question