Oakmont Company has an opportunity to manufacture and sell a new product for a four-year...
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| Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The companys discount rate is 17%. After careful study, Oakmont estimated the following costs and revenues for the new product: |
| Cost of equipment needed | $ | 275,000 | |
| Working capital needed | $ | 86,000 | |
| Overhaul of the equipment in two years | $ | 10,000 | |
| Salvage value of the equipment in four years | $ | 13,000 | |
| Annual revenues and costs: | |||
| Sales revenues | $ | 420,000 | |
| Variable expenses | $ | 205,000 | |
| Fixed out-of-pocket operating costs | $ | 87,000 | |
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| 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. |
| Required: | |
| Calculate the net present value of this investment opportunity. (Use the appropriate table to determine the discount factor(s).) |
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