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Computation of Incremental cash flow

Darth Vader, Inc. is looking at setting up a new manufacturing plant in Death Star to produce TIE fighters. The company bought some land a decade ago for $40 billion. The land was appraised recently for $30 billion. Darth Vader wants to build the new plant on this land; the plant will cost $50 billion to build, and the site requires $3 billion worth of grading before it is suitable for construction. What should be the proper "incremental cash flow" amount to use as the initial investment (CF0)?
a. $43 billion.
b. $60 billion.
c. $63 billion.
d. $83 billion.
e. $93 billion.

Solution Preview

What should be the proper "incremental cash flow" amount to use as the initial investment (CF0)?

It would be Appraisal cost of Land+Plant cost+Grading cost
=30+50+3
=$83 billion

Hence option d.

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Solution Summary

This explains the computation of incremental cash flow with the help of an example

$2.19