Oakmont Company has an opportunity to manufacture and sell a new product for a f

Question

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:

When the project concludes in four years the working capital will be released for investment elsewhere within the company.

Calculate the net present value of this investment opportunity. (Round discount factor(s) to 3 decimal places.)

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:

Explanation / Answer

Net Present Value of Investment opportunity is $30668 as calculated below Calculation of annual Cash Flow Year 0 1 2 3 4 Cost of equipment -155000 - - - - Working Capital needed -65000 - - - - Sales Revenues - 300000 300000 300000 300000 Variable Expenses - -145000 -145000 -145000 -145000 Fixed out-of-pocket operating costs - -75000 -75000 -75000 -75000 Overhaul of the equipment in two years - - -9000 - -9000 Salvage value of the equipment in four years - - - - 14500 Working Capital released at the end of four years 65000 Net Cash flow -220000 80000 71000 80000 150500 Discount Factor @17% 1.000 0.855 0.731 0.625 0.534 Discounted Cash Floow -220000 68400 51901 50000 80367 (Net Cash Flow x Discount Factor) Net Present Value = (-220000 + 68400 + 51901 + 50000 + 80367) = $30668

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.