Oakmont Company has an opportunity to manufacture and sell a new product for a f
ID: 2478707 • Letter: O
Question
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company’s discount rate is 16%. 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.
Calculate the net present value of this investment opportunity. (Use the appropriate table to determine the discount factor(s).)
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company’s discount rate is 16%. After careful study, Oakmont estimated the following costs and revenues for the new product:
Explanation / Answer
56868
Project should be accepted as NPV is positive ie $ 56868
Years Cash Flows Discounting Factor@16% PV Of cash Flow Cost of equipment 0 -170000 1 -170000 Working capital needed 0 -68000 1 -68000 Receipts 1-4 92000 2.798 257416 Salvage value 4 16000 0.552 8832 Workingb Capital released 4 68000 0.552 37536 Overhauling cost 2 -12000 0.743 -8916 NPV56868
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