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 Annual revenues and costs: Sales revenues $ 230,000 $ 84,000 $ 9,000 $ 12,000 Variable expenses $ 400,000 $ 195,000 $ 85,000 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. Required: Calculate the net present value of this investment opportunity. (Round your final answer to the nearest whole dollar amount.)
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 Annual revenues and costs: Sales revenues $ 230,000 $ 84,000 $ 9,000 $ 12,000 Variable expenses $ 400,000 $ 195,000 $ 85,000 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. Required: Calculate the net present value of this investment opportunity. (Round your final answer to the nearest whole dollar amount.)
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
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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.
Annual revenues and costs:
Sales revenues
$ 230,000
$ 84,000
$ 9,000
$ 12,000
$ 400,000
Variable expenses
$ 195,000
$ 85,000
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.
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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