Oakmont Company has an opportunity to manufacture and sell a new product for a four-year...
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Accounting
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period.
The company's discount rate is 20%. After careful study, Oakmont estimated the following costs and revenues for the new product:
| Cost of equipment needed | $130,000 |
| Working capital needed | $60,000 |
| Overhaul of the equipment in two years | $8,000 |
| Salvage value of the equipment in four years | $12,000 |
| Annual revenues and costs: | |
| Sales revenues | $250,000 |
| Variable expenses | $120,000 |
| Fixed out-of-pocket operating costs | $70,000 |
When the project concludes in four years the working capital will be released for investment elsewhere within the company.
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