Oakmont Company has an opportunity to manufacture and sell a new product for a four-year...
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Accounting
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The companys discount rate is 18%. After careful study, Oakmont estimated the following costs and revenues for the new product:
Cost of equipment needed$ 230,000Working capital needed$ 84,000Overhaul of the equipment in two years$ 9,000Salvage value of the equipment in four years$ 12,000Annual revenues and costs: Sales revenues$ 400,000Variable expenses$ 195,000Fixed out-of-pocket operating costs$ 85,000
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.)
EXHIBIT 14B-1 Present Value of $1;((1+r))n1 XHIB 14B-2 Present Value of an Annuity of \$1 in Arrears; r1[1((1+r))n1]
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