Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate 18% and it 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 Variable expenses Fixed out-of-pocket operating costs $ 270,000 $ 90,000 $ 9,000 $ 14,500 $ 450,000 $ 220,000 $ 90,000 When the project concludes in four years, the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: Calculate the net present value of this investment opportunity.

Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate 18% and it 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 Variable expenses Fixed out-of-pocket operating costs $ 270,000 $ 90,000 $ 9,000 $ 14,500 $ 450,000 $ 220,000 $ 90,000 When the project concludes in four years, the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: Calculate the net present value of this investment opportunity.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 21P

See similar textbooks

Similar questions

Net present value method for a service company Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for 70,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected residual value of 15,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be 65,000 per year for each of the next five years. A driver will cost 40,000 in 20Y1, with an expected annual salary increase of 2,000 for each year thereafter. The annual operating costs for the truck are estimated to be 6,000 per year. a. Determine the expected annual net cash flows from the delivery truck investment for 20Y120Y5. b. Compute the net present value of the investment, assuming that the minimum desired rate of return is 12%. Use the present value table appearing in Exhibit 2 of this chapter. c. Is the additional truck a good investment based on your analysis? Explain.
Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.
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 of equipment needed Working capital needed i Overhaul of the equipment in two years Salvage value of the equipment in four years: Annual revenues and costs: Sales revenues $ 130,000 $ 60,000 $ 8,000 $ 12,000 $ 250,000 $ 120,000 $ 70,000 Variable expenses Fixed out-of-pocket operating costs When the project concludes in four years the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 128-1 and Exhibit 128-2, to determine the appropriate discount factor(s) using tables. Net present value Required: Calculate the net present value of this investment opportunity. (Round your final answer to the nearest whole dollar amount.)
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 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 Variable expenses Fixed out-of-pocket operating costs $ 130,000 $ 60,000 8,000 $ 12,000 $ When the project concludes in four years the working capital will be released for investment elsewhere within the company. $250,000 $ 120,000 $ 70,000 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 discount factor(s) to 3 decimal places.) Net present value 3
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 Working capital needed) Overhaul of the equipment in two years. Salvage value of the equipment in four years Annual revenues and costs: Sales revenues $ 275,000 $ 86,000 $10,000 $ 13,000 $ 420,000 Variable expenses $ 205,000 Fixed out-of-pocket operating costs $ 87,000 When the project concludes in four years the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 148-1 and Exhibit 148-2. 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.)
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 Working capital needed Overhaul of the equipment in two years Salvage value of the equipment in four years Annual revenues and costs: Sales revenues Variable expenses Fixed out-of-pocket operating costs $225,000 $ 80,000 $7,000 $ 10,000 $360,000 $ 175,000 $ 81,000 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. Net present value Required: Calculate the net present value of this investment opportunity. (Round discount factor(s) to 3 decimal places.)
A machine costing $150 000 has a useful life of eight years, after which time its estimated resale value is $25 000. Annual running costs will be $5 000 for the first three years of use and then $8 000 for each of the next five years. All running costs are payable on the last day of the year to which they relate.Required:Using discount rate of 20% per annum, calculate the annual equivalent cost of using the machine if it were bought and replaced every night years in perpetuity (to the nearest $100)(Round discount factor to two decimal places)
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 Working capital needed Overhaul of the equipment in year two Salvage value of the equipment in four years Annual revenues and costs: Sales revenues Variable expenses Fixed out-of-pocket operating costs $ 165,000 $ 67,000 $ 10,000 $ 13,000. $ 320,000 $ 155,000 $ 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 128-1 and Exhibit 128-2, to determine the appropriate discount factor(s) using tables. (Use the tables to get your discount factors. The linked tables are the same tables as the ones in your course packet. If you calculate discount factors using Excel or a financial calculator, your answer may be different enough due to rounding…
Alpha Company has an opportunity to manufacture and sell a new product for a 3-year period. The company's discount rate is 12%. After careful study, Alpha estimated the following costs and revenues for the new product: Cost of equipment needed £200,000 Working capital needed 50,000 Repair of the equipment in first year $5000. Salvage value of the equipment in 3 years 15000. Annual revenues and costs: Sales revenue 500,000 Variable expenses 250,000 Fixed out-of-pocket operating costs 50,000 When the project concludes in 3r years the working capital will be released for investment elsewhere within the company. What is the NPV of the project?
Consider a machine that initially cost $6,000 and has these estimated annual expenses and market value: End of year Annual expenses, $ 2,000 2,000 2,000 3,000 3,000 Market value at end of Year, $ 5,200 4,200 1 2 3 3,200 2,200 1,200 4 5 If the MARR is 9% per year, determine its economic service life (Suppose an Economic Service Life occurs in the fourth or fifth year. Show Cash Flow Diagram for those years).