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 two years Salvage value of the equipment in four years Annual revenues and costs: Sales revenues $ 220,000 $ 70,000 $ 6,000 $ 17,000 $ 350,000 Variable expenses $ 170,000 Fixed out-of-pocket operating costs $ 80,000 When the project concludes in four years the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 12B-1 and Exhibit 12B-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 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 two years Salvage value of the equipment in four years Annual revenues and costs: Sales revenues $ 220,000 $ 70,000 $ 6,000 $ 17,000 $ 350,000 Variable expenses $ 170,000 Fixed out-of-pocket operating costs $ 80,000 When the project concludes in four years the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 12B-1 and Exhibit 12B-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.)
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 two years
Salvage value of the equipment in four years
Annual revenues and costs:
Sales revenues
$ 220,000
$70,000
$ 6,000
$ 17,000
$ 350,000
$ 170,000
Variable expenses
Fixed out-of-pocket operating costs
$ 80,000
When the project concludes in four years the working capital will be released for investment elsewhere within the company.
Click here to view Exhibit 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.)
Net present value
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