Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period.The company's discount rate is 16% and it estimated the following costs and revenues for the newproduct: Cost of equipment needed $170,000 Working capital needed $ 68,000 Overhaul of theequipment in two years $ 12,000 Salvage value of the equipment in four years $ 16,000 Annual revenuesand costs: Sales revenues $ 330,000 Variable expenses $ 160,000 Fixed out-of-pocket operating costs $78,000 When the project concludes in four years, the working capital will be released for investmentelsewhere within the company. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine theappropriate discount factor(s) using tables. Required: Calculate the net present value of this investmentopportunity. Note: Round your final answer to the nearest whole dollar amount.

Required:Net present value$56,868Working:Net present value = Present value of cash inflow - Present…

Answered: Oakmont Company has an opportunity to…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 21P

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Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $190,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $87,000 per year; and Machine 360-6, which has a cost of $360,000, a 6-year life, and after-tax cash flows of $98,300 per year. Knitting machine prices are not expected to rise because inflation will be offset by cheaper components (microprocessors) used in the machines. Assume that Filkins’ cost of capital is 14%. Should the firm replace its old knitting machine? If so, which new machine should it use? By how much would the value of the company increase if it accepted the better machine? What is the equivalent annual annuity for each machine?
Postman Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of forklifts for the Materials Handling Department. The projected annual operating revenues and expenses are as follows: Required: Compute the after-tax cash flows of each project. The tax rate is 40 percent and includes federal and state assessments.
Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one the company expects the truck to be driven for 26,000 miles; in year two, 30,000 miles; and in year three, 40,000 miles. Consider how the purchase of the truck will impact Montellos depreciation expense each year and what the trucks book value will be each year after depreciation expense is recorded.
Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 16%. After careful study, Oakmont estimated the following costs and revenues for the new product: Cost of equipment needed Working capital needed $ 170,000 $ 68,000 Overhaul of the equipment in two years $ 12,000 $ 16,000 Salvage value of the equipment in four years Annual revenues and costs: Sales revenues $ 330,000 Variable expenses $ 160,000 $ 78,000 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. Click here to view Exhibit 12B-1 and Exhibit 12B-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.)
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 18% and it 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 $ 270,000 $ 90,000 $ 9,000 $ 14,500 $ 450,000 Variable expenses Fixed out-of-pocket operating costs $ 220,000 $ 90,000 When the project concludes in four years, the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 148-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: Calculate the net present value of this investment opportunity. Note: 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 $ 270,000 Working capital needed $ 90,000 Overhaul of the equipment in two years $ 9,000 Salvage value of the equipment in four years $ 14,500 Annual revenues and costs: Sales revenues $ 450,000 Variable expenses $ 220,000 Fixed out-of-pocket operating costs $ 90,000 When the project concludes in four years the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 8B-1 and Exhibit 8B-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
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 17%, 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 Variable expenses Fixed out-of-pocket operating costs $ 165,000 $ 67,000 $ 10,000 $ 13,000. $ 320,000 $ 155,000 $ 77,000 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. (Use the tables to get your discount factors. The linked tables are the same tables as the ones in your course packet. If you calculate discount factors using Excel or a financial calculator, your answer may be different enough due to rounding…
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company’s discount rate is 17%. After careful study, Oakmont estimated the following costs and revenues for the new product: Cost of equipment needed $ 225,000 Working capital needed $ 80,000 Overhaul of the equipment in two years $ 7,000 Salvage value of the equipment in four years $ 10,000 Annual revenues and costs: Sales revenues $ 360,000 Variable expenses $ 175,000 Fixed out-of-pocket operating costs $ 81,000 When the project concludes in four years the working capital will be released for investment elsewhere within the company. 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.)
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 17%. 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 $225,000 $ 80,000 $7,000 $ 10,000 $360,000 $ 175,000 $ 81,000 When the project concludes in four years the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. Net present value Required: Calculate the net present value of this investment opportunity. (Round discount factor(s) to 3 decimal places.)
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.)
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 17%. 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 $ 155,000 $ 65,000 $ 9,000 $ 14,500 $ 300,000 Variable expenses $ 145,000 Fixed out-of-pocket operating costs $ 75,000 When the project concludes in four years the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables. Net present value Required: Calculate the net present value of this investment opportunity. Note: Round your final answer to the nearest whole dollar amount.

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