A retailer is considering whether to open a new shop on a vacant block of land it owns. If the company goes ahead with the project, it will construct a new building at a cost of $2,264,000. It will also incur additional expenses of $256,000. The tax office has ruled that the building can be depreciated straight-line over 10 years, but the additional expenses are immediately tax-deductible. The land was purchased ten years ago at a cost of $1,137,000 and is worth $11,474,000 today. Setting up the new shop will require inventory of $424,000. What is the initial cash flow of the project, if the corporate tax rate is 30%? (make sure you indicate outflow as"-" and inflow are positive numbers. Only show the total value at the start of the project)

To calculate the initial cash flow of the project, we need to consider several components:

1. **Construction costs**: This is the cost of building the new shop, which is an outflow.
   \[
   -2,264,000
   \]

2. **Additional expenses**: These expenses are immediately tax-deductible, which reduces the tax burden. The net outflow will be the expenses after accounting for the tax benefit.
   - The tax deduction is calculated as $ 256,000 \times 30\% = 76,800 $.
   - The net outflow for the additional expenses is:
   \[
   256,000 - 76,800 = 179,200
   \]
   So the net outflow here is:
   \[
   -179,200
   \]

3. **Inventory costs**: Setting up the shop requires inventory of $424,000, which is another outflow.
   \[
   -424,000
   \]

4. **Land value**: Since the land is not being sold, its value does not impact the initial cash flow. However, it is worth noting for potential future calculations, but for now, it is irrelevant.

Now we sum up all the relevant initial cash flows:

\[
\text{Initial cash flow} = -2,264,000 - 179,200 - 424,000 = -2,867,200
\]

### Total Initial Cash Flow: 
\[
\boxed{-2,867,200}
\]

This is the total cash outflow at the start of the project.

Would you like further clarification or details on any part of the solution?

Here are five related questions to consider:
1. How does the corporate tax rate affect the depreciation calculations in future cash flows?
2. What would be the impact on cash flows if the company sold the land?
3. How does straight-line depreciation impact financial statements over the 10-year period?
4. What role does inventory play in working capital management for the project?
5. How would different financing options for the building affect the initial cash flow?

**Tip**: Always consider tax benefits when assessing initial cash flows, as they can significantly reduce outflows.

A retailer is considering whether to open a new shop on a vacant block of land it owns. If the company goes ahead with the project, it will construct a new building at a cost of $2,264,000. It will also incur additional expenses of $256,000. The tax office has ruled that the building can be depreciated straight-line over 10 years, but the additional expenses are immediately tax-deductible. The land was purchased ten years ago at a cost of $1,137,000 and is worth $11,474,000 today. Setting up the new shop will require inventory of $424,000. What is the initial cash flow of the project, if the corporate tax rate is 30%?

This article provides a detailed calculation of the initial cash flow for a new retail store project, considering construction costs, tax-deductible expenses, and inventory setup. Learn how to factor in corporate tax rates and depreciation to accurately assess the project's financials.

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