Assignment
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:
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Cost of equipment needed
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260,000
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Working capital needed
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87,000
|
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Overhaul of the equipment in two years
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10,500
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Salvage value of the equipment in four years
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13,500
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|
|
|
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Annual revenues and costs:
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|
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Sales revenues
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430,000
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Variable expenses
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210,000
|
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Fixed out-of-pocket operating costs
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88,000
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When the project concludes in four years the working capital will be released for investment elsewhere within the company.
View Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.
https://lectures.mhhe.com/connect/007802563x/exhibit_13b-1.jpg
https://lectures.mhhe.com/connect/007802563x/exhibit_13b-2.jpg
Required:
Calculate the net present value of this investment opportunity.