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

Year Revenues 1 $44,000 2 30,000 3 20,000 4 10,000 Thereafter 0

Expenses are expected to be 50% 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 $48,000 in plant and equipment.

Required:

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

b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm's tax rate is 40%, what are the project cash flows in each year? Assume the plantand equipment are worthless at the end of 4 years.

c. If the opportunity cost of capital is 15%, what is the project's NPV?

d. What is project IRR?

Req A

what is the initial investmentin the project? remember working capital

req B

If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm's tax rate is 40%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end of 4 years.(Do not round intermediate calculations.)

year cash flow

1

2

3

4

REQ C and D

c. If the opportunity cost of capital is 15%, what is the project's NPV? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

d. What is project IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

C. NPV __________

D IRR__________%