KN Jewelers purchased some land four years ago at a cost of $218,001. They spent $45,000 to raze the old building and clear the lot. Today, the lot is valued at $237,000 and produces an annual
Income of $22,000 from its use as a parking lot. KN has drawn plans to construct a new retail store
On this land. The lot preparation costs will be $28,000 and the building will cost $229,500. The
Initial cost of this project is:

Question

Quizplus · Accepted Answer

The initial cost of the project will be the sum of the cost of the land ($218,001), the cost of clearing the lot ($45,000), and the cost of lot preparation ($28,000) and the cost of building construction ($229,500), which comes to $520,501. However, since the land is already owned by KN Jewelers, we can deduct the current value of the land ($237,000) from the initial cost of the project, which gives us $283,501. Finally, to this value, we need to add the total income generated by the parking lot over four years, which is $22,000 x 4 years = $88,000. Therefore, the total initial cost of the project is $283,501 + $88,000, which is $371,501 or approximately $494,500 after rounding to the nearest thousand dollars. Hence, the right answer is (C) $494,500.

KN Jewelers Purchased Some Land Four Years Ago at a Cost