Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 18%. 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 year two Salvage value of the equipment in four years $ 220,000 $ 81,000 7,500 $ 10,500 Annual revenues and costs: Sales revenues $ 370,000 $ 180, 000 $ 82,000 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 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: Calculate the net present value of this investment opportunity. (Round your final answer to the nearest whole dollar amount.) Net present value
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 18%. 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 year two Salvage value of the equipment in four years $ 220,000 $ 81,000 7,500 $ 10,500 Annual revenues and costs: Sales revenues $ 370,000 $ 180, 000 $ 82,000 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 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: Calculate the net present value of this investment opportunity. (Round your final answer to the nearest whole dollar amount.) Net present value
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is
18%. 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 year two
Salvage value of the equipment in four years
$ 220,000
$ 81,000
7,500
$ 10,500
Annual revenues and costs:
Sales revenues
$ 370,000
$ 180,000
$ 82,000
Variable expenses
es
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 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.
Required:
Calculate the net present value of this investment opportunity. (Round your final answer to the nearest whole dollar amount.)
Net present value
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