A company can sell its existing building for $500,000 in order to purchase a larger facility for $750,000. The existing building was purchased 5 years ago for $450,000 and has a current book value of $350,000. The pre-tax net cash outflow from the purchase of the new building is A. $100,000 B. $250,000 C. $400,000 D. $300,000

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Business

Kason

10 May, 14:17

A company can sell its existing building for $500,000 in order to purchase a larger facility for $750,000. The existing building was purchased 5 years ago for $450,000 and has a current book value of $350,000. The pre-tax net cash outflow from the purchase of the new building is A. $100,000 B. $250,000 C. $400,000 D. $300,000

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Patrick Tyler · Answer 1

The pre-tax net cash outflow = $250,000

Explanation:

The pretax net cash flow would be the sum of the cash inflow from the purchase of the existing building and the cost of the larger facility.

Kindly note that the cost of the existing building is a sunk cost which does not represent cash flow. Similarly, the current is the current book value which represents the unconsumed accounting historical balance depreciation

The net cash flow a = 500,000 - 750,000 = (250,000)

The pre-tax net cash outflow = $250,000