You are preparing a capital project evaluation for a new plant, and one option for the location under consideration is a piece of property currently owned, purchased 20 years ago with a current book value of $75,000. Should this be a consideration?

a. Yes, it is an opportunity cost and should be valued at the $75,000 book value

b. No, it is a sunk cost

c. No, it is irrelevant to the current analysis because it is not an incremental cost

d. Yes, it is an opportunity cost and should be valued at the current best market value.

1. You are putting together a capital project for cat food, something new for your company. This is a major undertaking and you are focusing on the initial period cash flow. Machinery will cost $5 million and there will be sales tax of 5% on the machine. Delivery cost and installation fees will be $30,000. You have also been told that there will be incremental inventory required of $150,000 to start. Additionally, a significant market research project that cost $725,000 has recently been completed indicating a market share potential for the cat food market of 3%, which is very encouraging. What should be your estimate for initial period cash flow?

a. $5,150,000

b. -$5,180,000

c. -$5,430,000

d. -$6,155,000