Question
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The companys discount rate is 18%. 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 18%. After careful study, Oakmont estimated the following costs and revenues for the new product:
Cost of equipment needed | $ | 260,000 |
Working capital needed | $ | 87,000 |
Overhaul of the equipment in year two | $ | 10,500 |
Salvage value of the equipment in four years | $ | 13,500 |
Annual revenues and costs: | ||
Sales revenues | $ | 430,000 |
Variable expenses | $ | 210,000 |
Fixed out-of-pocket operating costs | $ | 88,000 |
When the project concludes in four years the working capital will be released for investment elsewhere within the company.
Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables.
Required:
Calculate the net present value of this investment opportunity. (Round your final answer to the nearest whole dollar amount.)
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