Question
Problem 13-18 Net Present Value Analysis [LO13-2] Oakmont Company has an opportunity to manufacture and sell...
Problem 13-18 Net Present Value Analysis [LO13-2]
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company’s discount rate is 17%. After careful study, Oakmont estimated the following costs and revenues for the new product:
| Cost of equipment needed | $ | 165,000 |
| Working capital needed | $ | 67,000 |
| Overhaul of the equipment in year two | $ | 10,000 |
| Salvage value of the equipment in four years | $ | 13,000 |
| Annual revenues and costs: | ||
| Sales revenues | $ | 320,000 |
| Variable expenses | $ | 155,000 |
| Fixed out-of-pocket operating costs | $ | 77,000 |
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 your final answer to the nearest whole dollar amount.)
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