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Windy Inc. is considering expanding on some land that it currently owns. The initial cost of the land was $300,000 and it is currently valued at $251,900. The company has some unused equipment that it currently owns valued at $30,000 that could be used for this project if $15,000 is spent for equipment modifications. What is the amount of the initial cash flow for this expansion project

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Zviko

Answer:

The amount of the initial cash flow for this expansion project is $15,000.

Explanation:

It is important to remember that Sunk costs are not relevant for decision making.

Sunk Cost are costs already incurred as a results of past decisions.

The Cost of Land of $300,000 and the Cost of Equipment Valued at $30,000 are both Sunk costs and are not relevant for this expansion project.

The Relevant Costs (Initial Cash Flow) is $15,000 for modifications.

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