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

Year	Revenues
1	$55,000
2	45,000
3	25,000
4	15,000
Thereafter	0

Expenses are expected to be 40% 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 $55,000 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 firms 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.

c. If the opportunity cost of capital is 10%, what is the project's NPV?

d. What is project IRR?

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

Initial investment

$69,000selected answer incorrect

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? Assume the plant and equipment are worthless at the end of 4 years. (Do not round intermediate calculations.)

Year	Cash Flow
1	$(69,000)selected answer incorrect
2	26,600selected answer incorrect
3	21,800selected answer incorrect
4	16,000selected answer incorrect

C & D

c. If the opportunity cost of capital is 10%, 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	$(4,377.71)selected answer incorrect
d.	IRR	7.50selected answer incorrect	%