Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $5.3 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $5.6 million. The company wants to build its new manufacturing plant on this land; the plant will cost $12.8 million to build, and the site requires $800,000 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?

$18.9 million

Explanation:

The computation of the  proper cash flow amount to use as the initial investment in fixed assets  is shown below:

= Land + building + grading

= $5.3 million + $12.8 million + $800,000

= $18.9 million

We simply added the land, building and grading cost so that the proper cash flow i.e to be used for the initial investment could come

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