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Initial cash flow of the project for land

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Reference no: EM132199882

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

Reference no: EM132199882

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