Asked by
Janessa Rodriguez
on Dec 09, 2024
Verified
PK Properties purchased a warehouse for $1.6 million ten years ago. Four years ago, the company repaired the roof at a cost of $220,001. Last year, the electrical wiring and lights were upgraded at a cost of $134,001. The annual taxes on the property are $28,500 and the rental income is $170,001. The warehouse has a current book value of $800,000 and a market value of $1.95 million. The property is totally debt-free. PK is considering converting the building into a discount retailer of bulk goods. The cost of the conversion would be $95,000 and could be started next month when the existing lease on the building expires. When analyzing the bulk goods option, what value should PK assign as the initial cost of the project? (Answer in dollars)
A) $95,000
B) $895,000
C) $1,249,000
D) $2,045,000
E) $2,215,000
Conversion Cost
The combined cost of direct labor and manufacturing overheads that are incurred to convert raw materials into finished goods.
Book Value
The net value of a company's assets minus its liabilities and intangible items, as stated on the balance sheet.
Market Value
The market's current asking price for an asset or service.
- Understand the concept of initial cost estimation for a project and different factors that play a role in it.
Verified Answer
HW
Learning Objectives
- Understand the concept of initial cost estimation for a project and different factors that play a role in it.