Use the table for the question(s)below.
-Your firm is considering building a new office complex. Your firm already owns land suitable for the new complex. The current book value of the land is $100 000; however, a commercial real estate agent has informed you that an outside buyer interested in purchasing this land would be willing to pay $650 000 for it. When calculating the net present value (NPV)of your new office complex, ignoring taxes, the appropriate incremental cash flow for the use of this land is
A)$100 000.
B)$0.
C)$750 000.
D)$650 000.

Question

Use the table for the question(s)below. 
-Your firm is considering building a new office complex. Your firm already owns land suitable for the new complex. The current book value of the land is $100 000; however, a commercial real estate agent has informed you that an outside buyer interested in purchasing this land would be willing to pay $650 000 for it. When calculating the net present value (NPV)of your new office complex, ignoring taxes, the appropriate incremental cash flow for the use of this land is
A)$100 000. 
B)$0. 
C)$750 000. 
D)$650 000.

Quizplus · Accepted Answer

The appropriate incremental cash flow for the use of the land is the difference between the market value of the land ($650,000) and its current book value ($100,000), which is $550,000. Therefore, the answer is D) $650,000.

Use the Table for the Question(s)below