Parker & stone, incorporated, is looking at setting up a new manufacturing plant in south park to produce garden tools. the company bought some land six years ago for $2.8 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. if the land were sold today, the company would net $3.2 million. the company wants to build its new manufacturing plant on this land; the plant will cost $14.3 million to build, and the site requires $825,000 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?

Question: Parker & stone, incorporated, is looking at setting up a new manufacturing plant in south park to produce garden tools. the company bought some land six years ago for $2.8 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. if the land were sold today, the company would net $3.2 million. the company wants to build its new manufacturing plant on this land; the plant will cost $14.3 million to build, and the site requires $825,000 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?

The proper cash flow amount to use as the initial investment in fixed assets when evaluating this project is the sum of the cost of building the new manufacturing plant and the cost of grading the land, minus the proceeds from selling the land.

The cost of building the new manufacturing plant is $14.3 million, and the cost of grading the land is $825,000. The proceeds from selling the land are $3.2 million.

Therefore, the initial investment in fixed assets can be calculated as follows:

Initial Investment = Cost of Building Plant + Cost of Grading Land - Proceeds from Selling Land

Initial Investment = $14.3 million + $825,000 - $3.2 million

Initial Investment = $12.925 million

So, the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project is $12.925 million.

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