Question
In: Accounting
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period....
|
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company’s discount rate is 17%. After careful study, Oakmont estimated the following costs and revenues for the new product: |
| Cost of equipment needed | $ | 190,000 | |
| Working capital needed | $ | 69,000 | |
| Overhaul of the equipment in two years | $ | 6,000 | |
| Salvage value of the equipment in four years | $ | 16,500 | |
| Annual revenues and costs: | |||
| Sales revenues | $ | 340,000 | |
| Variable expenses | $ | 165,000 | |
| Fixed out-of-pocket operating costs | $ | 79,000 | |
|
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.) |
?Net present value
Solutions
Expert Solution
|
Net Present Value of Investment Opportunity = 45,695 Calculation of NPV |
|||
| Discount Rate - 17% | |||
| Year | Cash Flow | Discounting Factor | Present Value |
| 0 | -190000 | 1 | -1,90,000 |
| 0 | -69000 | 1 | -69,000 |
| 1 | 96000 | 0.855 | 82,080 |
| 2 | -6000 | 0.731 | -4,386 |
| 2 | 96000 | 0.731 | 70,176 |
| 3 | 96000 | 0.624 | 59,904 |
| 4 | 16500 | 0.534 | 8,811 |
| 4 | 96000 | 0.534 | 51,264 |
| 4 | 69000 | 0.534 | 36,846 |
|
Net Present Value |
45,695 | ||
ekkarill92 answered 1 year agoRelated Solutions
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160,000
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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
$
265,000
Working capital needed
$
88,000
Overhaul of the equipment in year two
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Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period....
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product for a four-year period. The company’s discount rate is 17%.
After careful study, Oakmont estimated the following costs and
revenues for the new product:
Cost of equipment needed
$
165,000
Working capital needed
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Overhaul of the equipment in year two
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Working
capital needed
$
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Overhaul
of the equipment in two years
$
10,000
Salvage
value of the equipment in four years
$
13,000
Annual
revenues and costs:
Sales
revenues...
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