Dakmont 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 Working capital needed Overhaul of the equipment in two years Salvage value of the equipment in four years Annual revenues and costs: Sales revenues $ 155,000 $ 65,000 $ 9,000 $ 14,500 $ 300,000 Variable expenses $ 145,000 Fixed out-of-pocket operating costs $ 75,000 When the project concludes in four years the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables. Required: Calculate the net present value of this investment opportunity.
Dakmont 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 Working capital needed Overhaul of the equipment in two years Salvage value of the equipment in four years Annual revenues and costs: Sales revenues $ 155,000 $ 65,000 $ 9,000 $ 14,500 $ 300,000 Variable expenses $ 145,000 Fixed out-of-pocket operating costs $ 75,000 When the project concludes in four years the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables. Required: Calculate the net present value of this investment opportunity.
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 19P
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