Your Firm Is Considering Building a New Office Complex

question 15

Multiple Choice

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 is interested in purchasing this land and would be willing to pay $650,000 for it.When calculating the NPV of your new office complex,ignoring taxes,the appropriate incremental cash flow for the use of this land is:

• A)$650,000.
• B)$0.
• C)$100,000.
• D)$750,000.

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Definitions:

Batch

A set of goods or materials processed or produced at the same time, often used in the context of batch processing.

Split-Off Point

That point in the manufacturing process where some or all of the joint products can be recognized as individual products.

Sales Value

The total revenue attained from goods or services sold, calculated by multiplying the selling price by the number of units sold.

Absorption Costing

A costing method where all manufacturing costs, both fixed and variable, are allocated to products, thus "absorbing" them into the cost of goods sold.