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 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 $ 130,000 $ 60,000 $ 8,000 $ 12,000 When the project concludes in four years the working capital will be released for investment elsewhere within the company. $250,000 $ 120,000 $ 70,000 Click here to view Exhibit 13B-1 and Exhibit 13B-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 3
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 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 $ 130,000 $ 60,000 $ 8,000 $ 12,000 When the project concludes in four years the working capital will be released for investment elsewhere within the company. $250,000 $ 120,000 $ 70,000 Click here to view Exhibit 13B-1 and Exhibit 13B-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 3
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 15%. 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
$ 130,000
$ 60,000
8,000
$ 12,000
$
When the project concludes in four years the working capital will be released for investment elsewhere
within the company.
$250,000
$ 120,000
$ 70,000
Click here to view Exhibit 13B-1 and Exhibit 13B-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
3
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