The answer is not 3. What is the correct net present value? Oakmont Company has

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The answer is not 3. What is the correct net present value?

Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 15%. 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 S 130,000 S 60,000 S 8,000 S 12,000 Annual revenues and costs: Sales revenues Variable expenses Fixed out-of-pocket operating costs S250,000 S120,000 S 70,000 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. Required: Calculate the net present value of this investment opportunity. (Round discount factor(s) to 3 decimal places.) t present value

Explanation / Answer

Calculate Net present value :

Net present value $16496

Year Annual Cash flow Factor Present value 0 (130000) 1 (130000) 0 (60000) 1 (60000) 2 (8000) 0.756 (6048) 4 12000 0.572 6864 1-4 60000 2.856 171360 4 60000 0.572 34320 Net present value 16496

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