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1. Britt Real Estate is looking to establish a new office complex in downtown West Chester. The company bought land six years ago for $5.3
1. Britt Real Estate is looking to establish a new office complex in downtown West Chester. The company bought land six years ago for $5.3 million. The land would net $7.4 million if it were sold today. The company now wants to build its office complex on this land. The complex will cost $26.5 million to build and the site requires $1.32 million worth of grading before it is suitable for construction. What type of cost is the $5.3M? The $7.4 M? What is the proper year 0 cash flow amount to use as the initial investment in fixed assets when evaluating this project? Why? 2. Winchester Homes currently sells 28,000 townhouses per year at $77,000 each and 7,000 luxury homes per year for $120,000 each. The company wants to introduce a new modular home to fill out its product line. It hopes to sell 29,000 of the new modular home per year at $23,500 each. An independent consultant has determined that if the company introduces the new modular home, it should boost the sales of its existing townhouses by 2,500 per year and reduce the sales of its luxury homes by 750 per year. What is the amount to use as the annual sales figure when evaluating this project? Why
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