Hill Top Lumber Company is considering building a sawmill in the state of Washington because the company doesn't have such a facility to service its growing customer base located on the west coast. When evaluating the acceptability of the project, which of the following would be considered a relevant cash flow that should be included when determining the sawmill's initial investment outlay?

Question

A. Last year, Hill Top spent $75,000 preparing a feasibility study on whether the project should be pursued further; that is, whether the firm should conduct a complete capital budgeting analysis, which is extremely costly.
B. Hill Top estimates that the new sawmill will generate $3 million of new business each year it operates.
C. To raise the funds needed to build the sawmill, Hill Top must issue new bonds.
D. It will cost Hill Top $3 million to clear the land on which the sawmill will be built.
E. It is estimated that $20 million of business from Hill Top's current customers will transfer from existing sawmills to the new sawmill.

Answer 1

Answer: D