Problem:
Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $5.1 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $5.4 million. The company wants to build its new manufacturing plant on this land; the plant will cost $12.6 million to build, and the site requires $780,000 worth of grading before it is suitable for construction.
Requirement:
Question: What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?
Note: Show supporting computations in good form.