Problem:
Mercier Lumber Co. spent $1.2 million in research and development costs to devise a new cutting machine. The firm now wants to build a new building to house the new machine and expand its operations. The building will cost $670,000 and the machine can be built for $348,000. The building will be placed on land which the firm acquired nine years ago at a cost of $139,000. The land is currently valued at $155,000.
Required:
What initial cost should the firm use to analyze this expansion project? Explain comprehensively and also provide formulas and calculations.
A. $1,018,000
B. $1,173,000
C. $1,157,000
D. $2,373,000
E. $2,218,000