Your firm purchased a warehouse for 335000 six years ago Four years ago repairs

# Your firm purchased a warehouse for 335000 six years

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44. Your firm purchased a warehouse for \$335,000 six years ago. Four years ago, repairs were made to the building which cost \$60,000. The annual taxes on the property are \$20,000. The warehouse has a current book value of \$268,000 and a market value of \$295,000. The warehouse is totally paid for and solely owned by your firm. If the company decides to assign this warehouse to a new project, what value, if any, should be included in the initial cash flow of the project for this building? Opportunity cost = \$295,000Difficulty level: EasyTopic: Opportunity Cost45. You own a house that you rent for \$1,200 a month. The maintenance expenses on the house average \$200 a month. The house cost \$89,000 when you purchased it several years ago. A recent appraisal on the house valued it at \$190,000. The annual property taxes are \$5,000. If you sell the house you will incur \$10,000 in expenses. You are deciding whether to sell the house or convert it for your own use as a professional office. What value should you place on this house when analyzing the option of using it as a professional office? Opportunity cost = \$190,000 - \$0,000 = \$180,000Difficulty level: MediumTopic: Opportunity Cost8-46
Chapter 08 - Making Capital Investment Decisions46. Big Joe's owns a manufacturing facility that is currently sitting idle. The facility is located on a piece of land that originally cost \$129,000. The facility itself cost \$750,000 to build. As of now, the book value of the land and the facility are \$129,000 and \$186,500, respectively. Big Joe's received an offer of \$610,000 for the land and facility last week. The firm rejected this offer even though it was advised that the offer was reasonable. If Big Joe's were to consider using this land and facility in a new project, what cost, if any, should it include in the project analysis? CF0= \$610,000Difficulty level: EasyTopic: Opportunity Cost47. Jamie's Motor Home Sales currently sells 1,000 Class A motor homes, 2,500 Class C motor homes, and 4,000 pop-up trailers each year. Jamie is considering adding a mid- range camper and expects that if she does so she can sell 1,500 of them. However, if the new camper is added, Jamie expects that her Class A sales will decline to 950 units while the Class C campers decline to 2,200. The sales of pop-ups will not be affected. Class A motor homes sell for an average of \$125,000 each. Class C homes are priced at \$39,500 and the pop-ups sell for \$5,000 each. The new mid-range camper will sell for \$47,900. What is the erosion cost? Erosion cost = [(1,000 - 950) ×\$125,000] + [(2,500 - 2,200) ×\$39,500] = \$18,100,000Difficulty level: MediumTopic: Erosion Cost8-47
Chapter 08 - Making Capital Investment Decisions