Question
In: Finance
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 | $ | 165,000 |
| Working capital needed | $ | 67,000 |
| Overhaul of the equipment in year two | $ | 10,000 |
| Salvage value of the equipment in four years | $ | 13,000 |
| Annual revenues and costs: | ||
| Sales revenues | $ | 320,000 |
| Variable expenses | $ | 155,000 |
| Fixed out-of-pocket operating costs | $ | 77,000 |
When the project concludes in four years the working capital will be released for investment elsewhere within the company.
Click here to view Exhibit 12B-1 and Exhibit 12B-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.)
Solutions
jeff jeffy answered 2 years agoRelated Solutions
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 14%.
After careful study, Oakmont estimated the following costs and
revenues for the new product:
Cost of
equipment needed
$
140,000
Working
capital needed
$
62,000
Overhaul of
the equipment in two years
$
9,000
Salvage
value of the equipment in four years
$
13,000
Annual
revenues and costs:
Sales
revenues
$
270,000
Variable
expenses
$
130,000
Fixed...
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 18%.
After careful study, Oakmont estimated the following costs and
revenues for the new product:
Cost of equipment needed
$
160,000
Working capital needed
$
66,000
Overhaul of the equipment in year two
$
11,000
Salvage value of the equipment in four years
$
15,000
Annual revenues and costs:
Sales revenues
$
310,000
Variable expenses
$
150,000
Fixed out-of-pocket...
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 18%.
After careful study, Oakmont estimated the following costs and
revenues for the new product:
Cost of equipment needed
$
160,000
Working capital needed
$
66,000
Overhaul of the equipment in year two
$
11,000
Salvage value of the equipment in four years
$
15,000
Annual revenues and costs:
Sales revenues
$
310,000
Variable expenses
$
150,000
Fixed out-of-pocket...
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 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
$
8,000
Salvage value of the equipment in four years
$
14,000
Annual revenues and costs:
Sales revenues
$
440,000
Variable expenses
$
215,000
Fixed out-of-pocket...
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 15%.
After careful study, Oakmont estimated the following costs and
revenues for the new product:
Cost
of equipment needed
$
145,000
Working capital needed
$
63,000
Overhaul of the equipment in two years
$
9,500
Salvage value of the equipment in four years
$
13,500
Annual revenues and costs:
Sales revenues
$
280,000
Variable expenses
$
135,000
Fixed out-of-pocket...
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...
Winthrop Company has an opportunity to manufacture and sell a new product for a five-year period....
Winthrop Company has an opportunity to manufacture and sell a
new product for a five-year period. To pursue this opportunity, the
company would need to purchase a piece of equipment for $125,000.
The equipment would have a useful life of five years and zero
salvage value. It would be depreciated for financial reporting and
tax purposes using the straight-line method. After careful study,
Winthrop estimated the following annual costs and revenues for the
new product:
Annual revenues and costs:...
Problem 12-18 Net Present Value Analysis [LO12-2] Oakmont Company has an opportunity to manufacture and sell...
Problem 12-18 Net Present Value Analysis [LO12-2] 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 $ 275,000 Working
capital needed $ 86,000 Overhaul of the equipment in year two $
10,000 Salvage value of the equipment in four years $ 13,000 Annual
revenues and costs: Sales revenues $...
Problem 11-14A Net Present Value Analysis [LO11-2] Oakmont Company has an opportunity to manufacture and sell...
Problem 11-14A Net Present Value Analysis [LO11-2]
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
$
165,000
Working
capital needed
$
67,000
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...
Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one...
Lou Barlow, a divisional manager for Sage Company, has an
opportunity to manufacture and sell one of two new products for a
five-year period. His annual pay raises are determined by his
division’s return on investment (ROI), which has exceeded 23% each
of the last three years. He has computed the cost and revenue
estimates for each product as follows: Product A Product B Initial
investment: Cost of equipment (zero salvage value) $ 390,000 $
585,000 Annual revenues and costs:...
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