Question

Five years ago, repairs were made to the building which cost $80,000. The building has a current market value of $424,000 and a current book value of $399,000. The building is completely paid for and solely owned by the firm. If the company decides to assign this building to a new project, what value, if any, should be included in the initial cash flow of the project for this building?

Answer 1

The initial cash flow of the project for this building should include the current market value of $424,000.

Step-by-step explanation:

The $80,000 cost involved in the repairs made in the building can not be included in the new project. Because this cost was incurred five years ago, it should not be included in new project, since the financial statements is different for separate projects. So, the initial cash flow will include only the current market value which is $424,000.