Q1)

NTT-Docomo is preparing to launch its teleconferencing cell phone business. A $6000 initial investment is required for this five-year project. The equipment will be depreciated with a straight-line depreciation over the five years to a final value of zero. NTT-Docomo expects to sell the equipment for a value of $500 at the end of the five years. The revenue and expense estimates for the project are given as follows:

Year 0

1

2

3

4

5Thereafter

Revenues 0

2000

3000

4000

4000

24000

Expenses0

750

900

1500

1500

9000

NTT-Docomo believes that each year a working capital level equal to 10% of the following year?s expected revenues should be maintained. The project will come to an end at the end of five years when the technology becomes obsolete. NTT-Docomo is in a 35% tax bracket and has a 12% required return on this project. Should NTT-Docomo enter this business?

Q1) NTT-Docomo is preparing to launch its teleconferencing cell phone business. A $6000 initial investment is required for this five-year project. The equipment will be depreciated with a straight-line depreciation over the five years to a final value of zero. NTT-Docomo expects to sell the equipment for a value of $500 at the end of the five years. The revenue and expense estimates for the project are given as follows: Year Revenues Expenses 0 0 0 1 2000 750 2 3 4 5 Thereafter 3000 4000 4000 2400 0 900 1500 1500 900 0 NTT-Docomo believes that each year a working capital level equal to 10% of the following year's expected revenues should be maintained. The project will come to an end at the end of five years when the technology becomes obsolete. NTT-Docomo is in a 35% tax bracket and has a 12% required return on this project. Should NTT-Docomo enter this business