Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate 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 Variable expenses Fixed out-of-pocket operating costs $ 270,000 $ 90,000 $ 9,000 $ 14,500 $ 450,000 $ 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 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.
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate 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 Variable expenses Fixed out-of-pocket operating costs $ 270,000 $ 90,000 $ 9,000 $ 14,500 $ 450,000 $ 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 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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
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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa3fae4be-5e25-48c3-8b15-a4b45579428d%2F80645b2e-ec19-4a2a-ab23-3c7ec517be96%2Fbx9f53r_processed.png&w=3840&q=75)
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% 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
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