Mason Farms purchased a building for $689,000 and made repairs costing $136,000. The annual taxes on the property are $8,200. The building has a current market value of $730,000 and a current book value of $394,000. The building is mortgage-free. If the company decides to use this building for a new project, what value, if any, should be included in the initial cash flow of the project for this building?

Question

Quizplus · Accepted Answer

The initial cash flow should include the opportunity cost, which is the current market value of the building, $730,000, as this is the value foregone by using the building for the project instead of selling it.

Mason Farms Purchased a Building for $689,000 and Made Repairs