Your Firm Is Considering Building a New Office Complex

question 88

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 net present value (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:

Residual Income

A financial metric that calculates the amount of income generated exceeding the minimum rate of return.

Goal Congruence

A condition in organizational management whereby the goals of the individuals align with the objectives of the organization, fostering a collaborative effort towards achieving those objectives.

Decentralised Organisation

An organizational structure in which decision-making authority is distributed among various levels and departments, promoting agility and faster decision-making.

Autonomous Managers

Autonomous managers are individuals who have the independence and authority to make decisions and manage operations without constant oversight from higher management levels.