Cost of equipment needed Working capital needed Overhaul of the equipment in two years Salvage value of the equipment in four years Annual revenues and costs: Sales revenues $ 130,000 $ 60,000 $ 8,000 $ 12,000 $ 250,000 $ 120,000 $ 70,000 Variable expenses Fixed out-of-pocket operating costs When the project concludes in four years the working capital will be released for investmer

Cost of equipment needed Working capital needed Overhaul of the equipment in two years Salvage value of the equipment in four years Annual revenues and costs: Sales revenues $ 130,000 $ 60,000 $ 8,000 $ 12,000 $ 250,000 $ 120,000 $ 70,000 Variable expenses Fixed out-of-pocket operating costs When the project concludes in four years the working capital will be released for investmer

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 2P

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Question

Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is
15%. After careful study, Oakmont estimated the following costs and revenues for the new product:
Cost of equipment needed
Working capital needed i
Overhaul of the equipment in two years
Salvage value of the equipment in four years:
Annual revenues and costs:
Sales revenues
$ 130,000
$ 60,000
$ 8,000
$ 12,000
$ 250,000
$ 120,000
$ 70,000
Variable expenses
Fixed out-of-pocket operating costs
When the project concludes in four years the working capital will be released for investment elsewhere within the company.
Click here to view Exhibit 128-1 and Exhibit 128-2, to determine the appropriate discount factor(s) using tables.
Net present value
Required:
Calculate the net present value of this investment opportunity. (Round your final answer to the nearest whole dollar amount.)

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Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 15%. After careful study, Oakmont estimated the following costs and revenues for the new product: Cost of equipment needed Working capital needed Overhaul of the equipment in two years Salvage value of the equipment in four years Annual revenues and costs: Sales revenues Variable expenses Fixed out-of-pocket operating costs $ 130,000 $ 60,000 8,000 $ 12,000 $ When the project concludes in four years the working capital will be released for investment elsewhere within the company. $250,000 $ 120,000 $ 70,000 Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. $ Required: Calculate the net present value of this investment opportunity. (Round discount factor(s) to 3 decimal places.) Net present value 3
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