Calculate net present value of this investment opportunity » Full Grade
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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 16% After careful study, Oakmont estimated the following costs and revenues for the new product:
Cost of equipment needed $250,000
Working capital needed $82,000
Overhaul of the equipment in year two $8,000
Salvage value of the equipment in four years $11,000
Annual revenues and costs:
Sales revenues $380,000
Variable expenses $185,000
Fixed out-of-pocket operating costs $83,000
When the project concludes in four years the working capital will be released for investment elsewhere within the company.
Required – Calculate the net present value of this investment opportunity.
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