Question
This is an excel assignment Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. After careful study, Oakmont
This is an excel assignment
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. After careful study, Oakmont estimated the following costs and revenues for the new product:
So the working capital needed means that more cash will need to be invested in inventory and other working capital items. When the project concludes in four years the working capital will be released for investment elsewhere within the company, meaning that the cash will be recovered at the end of the 4 years. The overhaul is a cash outflow at the end of 2 years.
Required: Using Excel answer the following:
- Oakmonts cost of capital is 15%, and management does not feel it should have any adjustment for risk, compute the NPV.
- Compute the IRR for this project.
- At the end of year 1, management wants to spend $10,000 extra each year (so at the end of years 1, 2, and 3) for advertising. They expect the volume of sales to increase by 10% year over year (for years 2, 3 and 4){this means that sales volume will increase by 10% from year 1 to year 2, and then from year 2s volume to year 3's volume by another 10%, etc.).
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