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.

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 18%. After careful study, Oakmont estimated the following costs and revenues for the new product:

Explanation / Answer

Year cash flow PVF(18% , n year)   PVAF(18%,4year) present value

        0 -270000 1 - -270000

   0 -90000 1 - -90000

   2 -9000 0.718 - 6462

1-4 140000 - 2.690 376600

   4. 14500 0.516 - 7482

   4 90000 0.516 - 46440

Net present value = present value of cash inflow - present value of cash outflow

= $(376600 + 7482+ 46440) - $(270000+90000+6462)

   = $430522 - $366462

   = $64060

Note:- Annual reveue = $450000

Less: Variable cost = $220000

less: Fixed cost =$90000

   Annual cash inflow =$140000

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.