NET PRESENT VALUE Oaks, Inc., has just completed development of a new cell phone. The new product
Question:
NET PRESENT VALUE Oaks, Inc., has just completed development of a new cell phone. The new product is expected to produce annual revenues of $450,000. To produce the cell phone, an investment requires an investment in new equipment, costing $480,000. The cell phone has a projected life cycle of five years. After five years, the equipment can be sold for $60,000.
Working capital is also expected to increase by $60,000, which Oaks will recover by the end of the new product’s life cycle. Annual cash operating expenses are estimated at
$270,000. The required rate of return is 8 percent.
Required:
. Prepare a schedule of the projected annual cash flows.
. Calculate the NPV using only discount factors from Exhibit A3-8.
. Calculate the NPV using discount factors from both Exhibit
Step by Step Answer:
Cornerstones Of Financial Accounting Current Trends Update
ISBN: 9781111527952
1st Edition
Authors: Jay Rich , Jeff Jones, Maryanne Mowen , Don Hansen