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

Year Revenues

1 $60,000

2 45,000

3 30,000

4 10,000

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 $60,000 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 firm's tax rate is 30%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end of 4 years.

Year

1 Cash Flow _____

2 Cash Flow _____

3 Cash Flow _____

4 Cash Flow _____

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

NPV _____

d. What is project IRR?

IRR _____%