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Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period
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:
|
|
|
|
|
Cost of equipment needed |
$ |
170,000 |
|
Working capital needed |
$ |
68,000 |
|
Overhaul of the equipment in year two |
$ |
12,000 |
|
Salvage value of the equipment in four years |
$ |
16,000 |
|
|
|
|
|
Annual revenues and costs: |
|
|
|
Sales revenues |
$ |
330,000 |
|
Variable expenses |
$ |
160,000 |
|
Fixed out-of-pocket operating costs |
$ |
78,000 |
|
|
||
When the project concludes in four years the working capital will be released for investment elsewhere within the company.
Required:
Calculate the net present value of this investment opportunity. (Round your final answer to the nearest whole dollar amount.
Expert Solution
PFA
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