Oakmont Company has an opportunity to manufacture and sell a new product for a f
ID: 2456570 • Letter: O
Question
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:
When the project concludes in four years the working capital will be released for investment elsewhere within the company.
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
Calculate the net present value of this investment opportunity. (Use the appropriate table to determine the discount factor(s).)
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:
Explanation / Answer
The net present value of this investment opportunity is $ 31,349
Period Cost of equipment Working capital Overhaul of equipment Salvage value cash inflows from operations Total cash flows PV factor at 18% Present Value 0 (220,000) (81,000) (301,000) 1 (301,000) 1 108,000 108,000 0.847 91,476 2 (7,500) 108,000 100,500 0.718 72,159 3 108,000 108,000 0.609 65,772 4 81,000 10,500 108,000 199,500 0.516 102,942 NPV 31,349Related Questions
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