Question
Revenues generated by a new fad product are forecast as follows: YearRevenues1$ 40,000230,000320,000410,000Thereafter0 Expenses are expected to be 40% of revenues, and working capital required
Revenues generated by a new fad product are forecast as follows:
YearRevenues1$ 40,000230,000320,000410,000Thereafter0Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 10% of revenues in the following year. The product requires an immediate investment of $53,000 in plant and equipment.
Required:
- What is the initial investment in the product? Remember working capital.
- 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 20%, what are the project cash flows in each year?
- If the opportunity cost of capital is 12%, what is project NPV?
- What is project IRR?
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Multinational Business Finance
Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett
11th Edition
0321357965, 978-0321357960
