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 13B-1 and Exhibit 13B-2. to determine the appropriate discount factor(s) using tables. Required: Calculate the net present value of this investment opportunity (Round discount factor(s) to 3 decimal places.) Net present value

Explanation / Answer

Oakmont Company For calculating the Net Present Value, the following factors are to be considered : Discount Rate = 18% Cost of Equipment in Year 0 = $ 360,000 Additional Costs in Year 2 = $ 9,000 Additional Costs in Year 4 = $ 14,500 Annual Income per year = $ 450,000 - $ 220,000 - $ 90,000 = $ 140,000. Given these factors, the Net Present Value of the project is calculated as under : -15,468.911 - $ 15,468.911

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