Question

The Green Tomato purchased a parcel of land six years ago for $389,900. At that time, the firm invested $128,000 grading the site so that it would be usable. Since the firm wasn't ready to use the site itself at that time, it decided to lease the land for $48,000 a year. The Green Tomato is now considering building a hotel on the site as the rental lease is expiring. The current value of the land is $415,000. The firm has no loans or mortgages secured by the property. What value should be included in the initial cost of the hotel project for the use of this land?

Answer 1

Answer:

$415,000

Explanation:

Since the current value of the land is $415,000 which represents the opportunity cost whereas the purchase of land six years ago represents the sunk cost which is not relevant for the decision making the purpose and the grading cost is also not relevant.  

So, in this case, the historical cost is ignored

All other information which is given is not relevant. Hence, ignored it