Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The
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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 | $ 220,000 |
---|---|
Working capital needed | $ 81,000 |
Overhaul of the equipment in two years | $ 7,500 |
Salvage value of the equipment in four years | $ 10,500 |
Annual revenues and costs: | |
Sales revenues | $ 370,000 |
Variable expenses | $ 180,000 |
Fixed out-of-pocket operating costs | $ 82,000 |
When the project concludes in four years the working capital will be released for investment elsewhere within the company.
Click here to view Exhibit 14B-1 and Exhibit 14B-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.)
Related Book For
Managerial Accounting
ISBN: 978-0077522940
15th edition
Authors: Ray Garrison, Eric Noreen, Peter Brewer
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