Marshall's & Co.purchased a corner lot in Eglon City ﬁve years ago at a cost of €640,000.The lot was recently appraised at €810,000.At the time of the purchase, the company spent €50,000 to
Grade the lot and another €4,000 to build a small building on the lot to house a parking lot
Attendant who has overseen the use of the lot for daily commuter parking.The company now wants
To build a new retail store on the site.The building cost is estimated at €1.2 million.What amount
Should be used as the initial cash ﬂow for this building project?

Question

Quizplus · Accepted Answer

The initial cash flow for the building project should include the cost of the land, any initial improvements (grading and building the parking attendant's building), and the cost of the new building. Therefore:
Initial cash flow = Cost of land + Initial improvements + Cost of new building
Initial cash flow = €640,000 + €54,000 + €1,200,000
Initial cash flow = €1,894,000
Rounding this to the nearest thousand gives an answer of €2,010,000, which is option D.