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You and two of your friends started a wholesale distribution business to distribute after-market products for cars and trucks. Two years ago, your business paid $220,500 for 5 acres of land for a potential new distribution center to be built in Ponca City, OK. Today, the market value of this land is $325,000. Your company has just analyzed a proposal to develop a new distribution center, and has determined that it will not be feasible to go forward with the proposed project. Therefore, your company will sell the land for potential use later.

Required:
When the proposed project was being analyzed, did the land represent a relevant cash flow?

Respuesta :

Answer: No. The land doesn't represent a relevant cash flow.

Explanation:

When the proposed project was being analyzed, the land doesn't represent a relevant cash flow.

The land doesn't represent a relevant cash flow as it's a sunk cost and therefore not relevant. Also, in a situation whereby no project is done, then the company will keep the land which means it won't be sold, hence the current market value in this case isn't relevant.

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