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
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
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 19P
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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 | |
| $ | 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
|
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