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Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $50,000 2 20,000 3 10,000 4 5,000 Thereafter 0 Expenses are

Revenues generated by a new fad product are forecast as follows:

Year Revenues
1 $50,000
2 20,000
3 10,000
4 5,000
Thereafter 0

Expenses are expected to be 60% of revenues, and working capital required in each year is expected to be 20% of revenues in the following year. The product requires an immediate investment of $52,000 in plant and equipment.

a. What is the initial investment in the product? Remember working capital.

Initial investment $

b.

If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firms tax rate is 40%, what are the project cash flows in each year? (Enter your answers in thousands of dollars. Do not round intermediate calculations. Round your answers to 2 decimal places.)

Year Cash Flow
1 $
2
3
4

c.

If the opportunity cost of capital is 10%, what is project NPV? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

NPV $

d.

What is project IRR? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

IRR %

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