Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 16%. After careful study, Oakmont estimated the following costs and revenues for the new product:
| Cost of equipment needed |
|
$ |
150,000 |
| Working capital needed |
|
$ |
64,000 |
| Overhaul of the equipment in two years |
|
$ |
10,000 |
| Salvage value of the equipment in four years |
|
$ |
14,000 |
| |
|
|
|
| Annual revenues and costs: |
|
|
|
| Sales revenues |
|
$ |
290,000 |
| Variable expenses |
|
$ |
140,000 |
| Fixed out-of-pocket operating costs |
|
$ |
74,000 |
When the project concludes in four years the working capital will be released for investment elsewhere within the company.