Question
Revenues generated by a new fad product are forecast as follows: YearRevenues1$65,000 2 $50,000 3 $40,000 4 $30,000Thereafter0 Expenses are expected to be 40% of
Revenues generated by a new fad product are forecast as follows:
YearRevenues1$65,000 2 $50,000 3 $40,000 4 $30,000Thereafter0
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 $60,000 in plant and equipment.
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.(Do not round intermediate calculations.)
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.)
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