2. 3.00 points Oakmont Company has an opportunity to manufacture and sell a new

Question

2. 3.00 points 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 $ 275,000 $ 86,000 $ 10,000 $ 13,000 Annual revenues and costs Sales revenues Variable expenses Fixed out-of-pocket operating costs $420,000 s 205,000 87,000 When the project concludes in four years the working capital will be released for investment elsewhere within the company Click here to view Exhibit 118-1 and Exhibit 113-2, to determine the appropriate discount factor s) using tables. Required: Calculate the net present value of this investment opportunity (Use the appropriate table to determine the discount factor(s).) t present velue

Explanation / Answer

a) Now 1 2 3 4 purchase of Equipment -275,000 working capital investment -86,000 annual net cash receipt 128,000 128,000 128,000 128,000 overhaul of equipment -10,000 working capital released 86,000 salvage value of equipment 13,000 total cash flows -361,000 128000 118000 128000 227000 discount factor (18%) 1 0.855 0.731 0.624 0.534 present value -361000 109440 86258 79872 121218 net present value 35,788 (note I have used PV of $1 table figures at 17% rounded to three decimal places incase the figures given is your question table are upto five figures please use that one to get exact answer) Net present value $35,788

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