Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period....

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Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The companys discount rate

business accounting

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Answer 1

Answer #1

Calculation of net present value
Particulars	now	Year 1	year 2	year 3	year 4
cost of equipment needed	-275000
working capital needed	-86000
overhaul of the equipment in year 2			-10000
salvage value					13000
recovery of working capital					86000

sale revenue		420000	420000	420000	420000
less:variable expenses		-205000	-205000	-205000	-205000
less:fixed out of pocket cost		-87000	-87000	-87000	-87000
net revenue		128000	128000	128000	128000
net cash flow	-361000	128000	118000	128000	227000
pv factor @ 17%	1	0.855	0.731	0.624	0.534
present value of cash inflow	-361000	109440	86258	79872	121218

total present value of cash inflow	396788
less: cost of equipment	-361000
net present value	35788

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