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.)
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 19P
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