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

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%. 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  

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