Question
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The companys discount rate is 16%. 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 16%. After careful study, Oakmont estimated the following costs and revenues for the new product: |
Cost of equipment needed | $ | 170,000 | |
Working capital needed | $ | 68,000 | |
Overhaul of the equipment in two years | $ | 12,000 | |
Salvage value of the equipment in four years | $ | 16,000 | |
Annual revenues and costs: | |||
Sales revenues | $ | 330,000 | |
Variable expenses | $ | 160,000 | |
Fixed out-of-pocket operating costs | $ | 78,000 | |
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When the project concludes in four years the working capital will be released for investment elsewhere within the company. |
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables. |
Required: | ||||||
Calculate the net present value of this investment opportunity. (Use the appropriate table to determine the discount factor(s).)
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