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.
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
Hence option d.
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This explains the computation of incremental cash flow with the help of an example
Proper cash ﬂow to use to evaluate the present value of the introduction of the new chip
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