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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 | $ | 265,000 | |
Working capital needed | $ | 88,000 | |
Overhaul of the equipment in two years | $ | 8,000 | |
Salvage value of the equipment in four years | $ | 14,000 | |
Annual revenues and costs: | |||
Sales revenues | $ | 440,000 | |
Variable expenses | $ | 215,000 | |
Fixed out-of-pocket operating costs | $ | 89,000 | |
|
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. (Round discount factor(s) to 3 decimal places.) |
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