Question
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The companys discount rate is 15%. After careful study,
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The companys discount rate is 15%. After careful study, Oakmont estimated the following costs and revenues for the new product: |
Cost of equipment needed | $ | 130,000 | |
Working capital needed | $ | 60,000 | |
Overhaul of the equipment in two years | $ | 8,000 | |
Salvage value of the equipment in four years | $ | 12,000 | |
Annual revenues and costs: | |||
Sales revenues | $ | 250,000 | |
Variable expenses | $ | 120,000 | |
Fixed out-of-pocket operating costs | $ | 70,000 | |
When the project concludes in four years the working capital will be released for investment elsewhere within the company. |
Click here to viewExhibit 13B-1andExhibit 13B-2, to determine the appropriate discount factor(s) using tables. |
Required: |
Calculate the net present value of this investment opportunity.(Round discount factor(s) to 3 decimal places.) |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started