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(Solution Download) Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The


 

 

 

 

 

 

 

Oakmont Company has an opportunity to manufacture and sell a new

 

product for a four-year period. The companyA????1s discount rate is 15%.

 

After careful study, Oakmont estimated the following costs and

 

revenues for the new product:

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Cost of

 

equipment needed

$

 

130,000

  Working

 

capital needed

$

 

60,000

  Overhaul of

 

the equipment in two years

$

 

8,000

  Salvage

 

value of the equipment in four years

$

 

12,000

  Annual

 

revenues and costs:

  Sales

 

revenues

$

 

250,000

  Variable

 

expenses

$

 

120,000

  Fixed

 

out-of-pocket operating costs

$

 

70,000

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

When the project concludes in four years the working capital

 

will be released for investment elsewhere within the company.

 

 

Click here to view Exhibit 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.)

 

 


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