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Chapter 7 Homework i Saved Help Save & Exit Submit n.pdf Oakmont Company has an opportunity...

Question

Chapter 7 Homework i Saved Help Save & Exit Submit n.pdf Oakmont Company has an opportunity...

Chapter 7 Homework i Saved Help Save & Exit Submit n.pdf Oakmont Company has an opportunity to manufacture and sell a new pro

Chapter 7 Homework i Saved Help Save & Exit Submit n.pdf Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 15%. After careful study, Oakmont estimated the following costs and revenues for the new product: Cost af equipment needed Working capital needed Overhaul of the equipment in year two Salvage value of the equipment in four years $ 130,000 $ 60,000 $ 8,000 $ 12,000 points Annual revenues and costs: Sales revenues Variable expenses Fixed out-of-pocket operating costs $ 250,000 $ 120,000 $ 70,000 eBook When the project concludes in four years the working capital will be released for investment elsewhere within the company. Print Click here to view Exhibit 78.1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables. References Required: Calculate the net present value of this investment opportunity. (Round your final answer to the nearest whole dollar amount.) Net present value Meta

Answers

Refer the below image for computation of Net Present Value :

Computation of Net Present Value Particulars 0 1 Initial Investment $ -1,30,000 Initial Working Capital $ 60,000 Overhaul in

Explanation :

  • Here first we have computed the cash-flow of each year.Represented as Net cash flow,The negative values are the cash-outflow and the positive are the inflows.
  • After computing the net cash flow for each year we have computed the present value factor using the formula (1 + rate)-period. Here rate is 15% and period is the year of cash flow.
  • Multiplying both we get the present value and adding them we get the net present value.
  • Net present value is $16415.79 and after rounding off to nearest dollar it is $16416.

Answer is $16416


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