Question
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $ 20,000 2 10,000 3 16,000 4 10,000 Thereafter 0 Expenses
Revenues generated by a new fad product are forecast as follows:
| Year | Revenues |
|---|---|
| 1 | $ 20,000 |
| 2 | 10,000 |
| 3 | 16,000 |
| 4 | 10,000 |
| Thereafter | 0 |
Expenses are expected to be 42% 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 $46,000 in plant and equipment.
- 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 20%, what are the project cash flows in each year?
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Fundamentals of Corporate Finance
Authors: Richard Brealey, Stewart Myers, Alan Marcus
8th edition
77861620, 978-0077861629
