Your firm is considering building a new office complex.Your firm already owns land suitable for the new complex.The current book value of the land is $100,000.However a commercial real estate agent has informed you that an outside buyer is interested in purchasing this land and would be willing to pay $650,000 for it.When calculating the NPV of your new office complex,ignoring taxes,the appropriate incremental cash flow for the use of this land is:
A)$650,000.
B)$0.
C)$100,000.
D)$750,000.

Question

Quizplus · Accepted Answer

The appropriate incremental cash flow is the opportunity cost of using the land, which is the amount the firm could receive if it sold the land, i.e., $650,000.

Your Firm Is Considering Building a New Office Complex