Reference no: EM133152941
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:
Cost of equipment needed $270,000
Working capital needed $90,000
Overhaul of the equipment in year two $9,000
Salvage value of the equipment in four years $14,500
Annual revenues and costs: Sales revenues $450,000
Variable expenses $220,000
Fixed out-of-pocket operating costs $90,000
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.