Question
Please explain the answer and show formulas Barred Windows LLC purchased a land for $2,000,000 four years ago. The land has been idle for a
Please explain the answer and show formulas
Barred Windows LLC purchased a land for $2,000,000 four years ago. The land has been idle for a while and its current market value is $1,800,000. The effective tax rate for Barred Windows LLC is 40%. If the company decides to use this land for a new project, what value, if any, should be included in the initial cash flow of the project for this land?
The answer:
Opportunity cost=1.8M-(1.8M-2M)*40 %=1.88M
Initial cash flow= -1.88M
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Financial Management Theory And Practice
Authors: Eugene Brigham, Michael Ehrhardt, Jerome Gessaroli, Richard Nason
3rd Canadian Edition
017658305X, 978-0176583057
