Oakmont Company has an opportunity to manufacture and sell a new product for a f

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. Required: Calculate the net present value of this investment opportunity.

Explanation / Answer

Years Inflow/Outflow Variable Expense Fixed Expense Net Cash flow Discounted @ 18% PV 0 -290000 0 0 -290000 1 -290000 1 350000 170000 80000 100000 0.847 84746 2 350000 176000 80000 94000 0.718 67509 3 350000 170000 80000 100000 0.609 60863 4 350000 176000 80000 94000 0.516 48484 4 87000 0 0 87000 0.516 44874 NPV 16476

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