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.

Calculate the net present value of this investment opportunity. (Round discount factor(s) to 3 decimal places.)

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 Outflow Cash Inflow Net Cash flow Discount Factor @18% PV of cash flow 0 ($353,000) ($353,000) 1 ($353,000.000) 1 $136,000 $136,000 0.847457627 $115,254.237 2 ($8,000) $136,000 $128,000 0.71818443 $91,927.607 3 $136,000 $136,000 0.608630873 $82,773.799 4 $136,000 $136,000 0.515788875 $70,147.287 4 Salvage Value $14,000 $14,000 0.515788875 $7,221.044 4 Working Capital $88,000 $88,000 0.515788875 $45,389.421 Total NPV $59,713.395 Workin Note: Sales Revenue $440,000 Less: Variable Expenses $215,000 Less: Fixed Operating expenses $89,000 Cash Inflow per year $136,000 Cash Outflow Cost of equipment needed $265,000 Working Capital needed $88,000 Total Outflow $353,000

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

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