Value of Land and Building

CFA Level II
#1

Can you please help me on this?

A company has bought a piece of land 5 years back at 10mil, which is going to be utilized now for a new project. If the Market Value of Land is 15 mil. Then what would be the impact on initial cash outlay.

Shall I consider $15 mil (or $10 or $0)?

A building was also bought at $5mil, and this building too will be used for the same project. Book Value of the building is $3mil and Market Value of the building is $2mil. What would be the impact on initial cash outlay ($5/$3/$2/0)

#2

I would bet on 10 + 5 so original book values. For FCInv that’s what we need. Does the question not give you an official answer?

#3

Got it Thanks.

Sorry, I don’t have any official answer.

#4

For the land, you should consider market value of $15 mil, as that’s what the selling price today will be ultimately

For the building, you should consider market value of $5 mil. Same reason as above.

Also, don’t forget to include change in Working Capital if there’s any!

#5

@Magician can you please comment

#6

Market Value makes sense to me, as it’s is the true opportunity cost.