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 year two | $ 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 view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.
EXHIBIT 12B-1 Present Value of Sl: 1 (1+r)n 0.683 0.437 0.319 Periods 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 40 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 0.962 0.952 0.943 0.935 0.926 25% 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.826 0.820 0.813 0.806 0.925 0.907 0.800 0.890 0.873 0.8570.842 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.7180.706 0.694 0.683 0.672 0.661 0.650 0.889 0.640 0.864 0.840 0.816 | 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0.564 0.551 0.537 0.524 0.855 0.512 0.823 0.792 0.763 0.735 0.708 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482 0.467 0.451 0.822 0.423 0.784 0.747 0.713 0.410 0.681 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402 0.386 0.370 0.355 0.341 0.328 0.790 0.746 0.705 0.6660.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335 0.319 0.303 0.289 0.275 0.760 0.262 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279 0.263 0.249 0.235 0.222 0.210 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233 0.218 0.204 0.703 0.191 0.179 0.645 0.592 0.544 0.168 0.500 0.460 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194 0.180 0.167 0.155 0.144 0.676 0.614 0.558 0.508 0.463 0.422 0.134 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162 0.149 0.137 0.126 0.116 0.107 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135 0.123 0.625 0.112 0.1030.094 0.086 0.557 0.497 0.444 0.397 0.356 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112 0.1020.092 0.083 0.076 0.601 0.530 0.469 0.415 0.069 0.368 0.326 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093 0.084 0.577 0.505 0.075 0.068 0.061 0.442 0.055 0.388 0.340 0.299 0.263 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078 0.069 0.062 0.055 0.049 0.044 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065 0.057 0.051 0.045 0.040 0.534 0.458 0.035 0.394 0.3390.292 0.252 0.218 0.188 0.163 0.141 0.123 0.107 0.093 0.081 0.071 0.062 0.047 0.042 0.036 0.032 0.513 0.436 0.371 0.317 0.028 0.270 | 0.231 0.198 0.170 0.146 0.125 0.108 0.093 0.080 0.069 0.060 0.052 0.045 0.039 0.034 0.030 0.026 0.494 0.416 0.350 0.023 0.296 0.250 0.212 0.180 0.153 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.044 0.038 0.032 0.028 0.024 0.021 0.018 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 0.098 0.083 0.070 0.060 0.051 0.043 0.037 0.031 0.027 0.023 0.020 0.017 0.456 0.014 0.377 0.312 0.258 0.215 0.178 0.149 0.124 0.104 0.087 0.073 0.061 0.051 0.043 0.037 0.031 0.026 0.022 0.019 0.439 0.359 0.294 0.2420.1990.164 0.0160.014 0.012 0.135 0.112 0.093 0.077 0.064 0.053 0.044 0.037 | 0.031 0.026 0.022 0.018 0.015 0.013 0.011 0.422 0.342 0.278 0.009 0.226 0.184 0.150 0.123 0.101 0.0830.068 0.056 0.046 0.038 0.032 0.026 0.022 0.018 0.015 0.013 0.011 0.009 0.406 0.007 0.326 0.262 0.211 0.170 0.138 0.112 0.091 0.074 | 0.060 0.049 0.040 0.033 0.027 0.022 0.018 0.015 0.0120.010 0.00 0.007 0.390 0.310 0.247 0.197 0.158 0.126 0.102 0.006 0.082 0.066 0.053 0.043 0.035 0.028 0.023 0.019 0.015 0.013 0.010 0.008 0.007 0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.074 0.059 0.047 0.006 0.005 0.038 0.030 0.024 0.020 | 0.0160.013 0.010 0.009 0.007 0.006 0.005 0.004 0.361 0.281 0.220 0.172 0.135 0.106 0.084 0.066 0.053 0.042 0.033 0.026 0.021 0.017 0.014 0.011 0.009 0.007 0.006 0.005 0.004 0.347 0.003 0.268 0.207 0.161 0.125 0.098 0.076 0.060 0.047 0.037 0.029 0.023 0.018 0.014 0.011 0.009 0.007 0.006 0.005 0.004 0.003 0.333 0.255 0.196 0.150 0.116 0.002 0.090 0.069 0.054 0.042 0.033 0.026 0.020 0.016 0.012 0.010 | 0.008 0.006 0.005 0.004 0.003 0.321 0.243 0.002 0.002 0.185 0.141 0.107 0.082 0.063 0.048 0.037 0.029 0.022 0.017 0.014 0.011 | 0.008 0.006 0.005 0.004 | 0.003 0.002 0.002 0.002 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.044 0.033 0.026 0.020 0.015 0.012 0.009 0.007 0.005 0.208 0.0040.003 0.003 0.002 0.002 0.001 0.142 0.097 0.067 0.046 0.032 0.022 0.015 0.0110.008 0.005 0.004 0.003 0.002 0.001 0.001 0.001 0.000 0.000 0.000 0.000 0.000 0.054 0.885 Periods 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 40 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.826 0.820 0.813 | 0.806 0.800 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 1.668 1.647 | 1.626 1.605 1.585 1.566 1.547 1.528 1.509 1.492 1.474 | 1.457 1.440 2.7752.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106 2.074 2.042 2.011 1.981 | 1.952 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589 2.540 2.494 2.448 2.404 2.362 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 3.517 3.433 | 3.352 3.274 3.1993.127 3.058 2.991 | 2.926 | 2.864 2.803 2.745 2.689 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326 3.245 3.167 3.092 3.020 2.951 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 3.508 3.416 3.327 3.2423.161 6.733 6.463 6.210 5.971 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837 3.726 3.619 3.518 3.421 3.329 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031 3.905 3.786 3.673 3.566 3.463 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192 4.0543.923 3.799 3.682 3.571 8.760 8.306 7.887 7.499 7.139 6.805 6.495 6.207 5.938 5.6875.453 5.234 5.029 4.836 4.656 4.486 4.327 4.177 4.035 3.902 3.776 3.656 9.385 8.863 8.384 7.943 7.5367.161 6.814 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439 4.278 4.127 3.985 3.851 3.725 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 6.122 5.8425.583 5.342 5.118 4.910 4.715 4.533 4.3624.203 4.053 3.912 3.780 10.563 | 9.899 9.295 8.745 8.244 7.786 7.367 | 6.982 6.628 6.302 6.002 5.724 5.468 5.2295.008 4.802 4.611 4.432 4.265 4.108 3.962 3.824 11.118 10.380 9.712 9.108 8.559 8.061 7.606 7.191 6.811 6.462 6.1425.847 5.575 5.324 5.092 4.876 4.675 4.489 4.315 4.1534.001 3.859 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 6.974 6.604 6.265 5.9545.668 5.405 5.162 4.938 4.730 4.536 4.357 4.189 4.033 3.887 12.166 11.274 10.4779.763 9.122 8.544 8.022 7.549 7.1206.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775 4.576 4.391 4.219 4.059 12.659 | 11.690 10.828 10.059 9.372 8.756 8.201 7.702 7.250 6.840 6.467 | 6.128 5.8185.534 5.273 5.033 4.812 4.608 4.419 4.243 4.080 3.928 13.134 | 12.085 | 11.158 10.336 9.604 8.950 8.365 7.839 7.366 | 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843 4.635 4.442 4.263 4.097 3.942 13.590 | 12.462 | 11.470 10.594 | 9.818 9.129 8.514 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.3535.101 4.870 4.657 4.460 4.279 4.110 3.954 14.029 | 12.821 | 11.764 10.836 10.017 | 9.292 8.649 8.075 7.562 7.102 6.687 6.3125.973 5.665 5.384 5.127 4.891 4.675 4.476 4.292 4.121 14.451 | 13.163 | 12.042 11.061 | 10.2019.442 8.7728.176 7.645 7.170 6.743 6.359 6.011 5.696 5.410 5.149 4.909 4.690 4.488 4.302 4.130 3.970 14.857 | 13.489 | 12.303 11.272 10.371 9.580 8.883 8.266 7.718 7.230 6.792 6.399 6.044 5.7235.432 5.167 4.925 4.703 4.499 4.311 4.137 | 3.976 15.247 | 13.799 12.550 11.469 10.529 9.707 8.985 8.348 7.784 7.283 6.835 6.434 6.073 5.746 5.451 5.182 4.937 4.713 4.507 4.318 4.143 3.981 15.622 14.094 | 12.783 11.654 10.675 | 9.823 9.077 8.422 7.8437.330 6.873 6.464 6.097 5.7665.467 5.195 4.948 4.721 4.514 4.323 4.147 3.985 15.983 14.375 13.003 11.826 10.810 | 9.929 9.161 8.488 7.896 7.372 6.906 6.491 6.118 5.783 5.480 5.2064.956 4.728 4.520 4.328 4.151 | 3.988 16.330 14.643 13.211 | 11.987 10.935 10.027 | 9.237 8.548 7.943 7.409 6.935 6.514 6.136 5.798 5.492 5.2154.964 4.734 4.524 4.332 4.154 3.990 16.663 14.898 13.406 12.137 11.051 10.116 | 9.307 8.602 7.9847.441 6.961 6.534 6.152 5.810 5.502 5.223 4.970 4.739 4.528 4.335 4.157 16.984 15.141 13.591 12.278 | 11.158 10.1989.370 8.650 8.022 7.470 6.983 6.551 6.166 5.820 5.510 5.229 4.975 4.743 4.531 4.337 4.1593.994 17.292 15.372 13.765 12.409 | 11.258 10.2749.427 8.694 8.055 7.496 7.0036.566 6.177 5.829 5.517 5.235 4.979 4.7464.534 4.3394.160 3.995 19.793 17.159 15.046 13.332 11.925 10.7579.779 8.951 8.244 7.634 7.105 6.642 6.233 5.871 5.548 5.258 4.997 4.760 4.544 4.347 4.166 | 3.999 3.910 3.963 3.992
