Question
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The companys discount rate is 17%. 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 17%. After careful study, Oakmont estimated the following costs and revenues for the new product:
Cost of equipment needed $ 275,000 Working capital needed $ 86,000 Overhaul of the equipment in two years $ 10,000 Salvage value of the equipment in four years $ 13,000 Annual revenues and costs: Sales revenues $ 420,000 Variable expenses $ 205,000 Fixed out-of-pocket operating costs $ 87,000
When the project concludes in four years the working capital will be released for investment elsewhere within the company.
Calculate the net present value of this investment opportunity.
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