Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. Thecompany's discount rate is 17%. After careful study, Oakmont estimated the following costs and revenues forthe new product:Cost of equipment neededWorking capital neededOverhaul of the equipment in two yearsSalvage value of the equipment in four$ 275,000$ 86,000$10,000$ 13,000yearsAnnual revenues and costs:$ 420,000$ 205,000$ 87,000Sales revenuesVariable expensesFixed out-of-pocket operating costsWhen the project concludes in four years the working capital will be released for investment elsewhere withinthe company.Use Excel or a financial calculator to solve.Required:Calculate the net present value of this investment opportunity. (Round to the nearest dollar.)Net present value

Net present value (NPV) refers to the difference between the present value of cash inflows and cash…

Oakmont Company has an opportunity to manufacture and sell a new product for a company's discount rate is 17%. After careful study, Oakmont estimated the followin the new product: Cost of equipment needed Working capital needed Overhaul of the equipment in two years Salvage value of the equipment in four years $ 275,000 $ 86,000 $ 10,000 $ 13,000 Annual revenues and costs: $ 420,000 $ 205,000 Sales revenues Variable expenses

Oakmont Company has an opportunity to manufacture and sell a new product for a company's discount rate is 17%. After careful study, Oakmont estimated the followin the new product: Cost of equipment needed Working capital needed Overhaul of the equipment in two years Salvage value of the equipment in four years $ 275,000 $ 86,000 $ 10,000 $ 13,000 Annual revenues and costs: $ 420,000 $ 205,000 Sales revenues Variable expenses

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section10.A: Mutually Exclusive Investments Having Unequal Lives

Problem 2P

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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 Working capital needed Overhaul of the equipment in two years Salvage value of the equipment in four years Annual revenues and costs: Sales revenues Variable expenses Fixed out-of-pocket operating costs $225,000 $ 80,000 $7,000 $ 10,000 $360,000 $ 175,000 $ 81,000 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. Net present value Required: Calculate the net present value of this investment opportunity. (Round discount factor(s) to 3 decimal places.)
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