Question
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $ 52,000 2 30,000 3 20,000 4 10,000 Thereafter 0 Expenses
Revenues generated by a new fad product are forecast as follows:
| Year | Revenues |
|---|---|
| 1 | $ 52,000 |
| 2 | 30,000 |
| 3 | 20,000 |
| 4 | 10,000 |
| Thereafter | 0 |
Expenses are expected to be 50% of revenues, and working capital required in each year is expected to be 30% of revenues in the following year. The product requires an immediate investment of $54,000 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 30%, 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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ISE Foundations Of Financial Management
Authors: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
18th International Edition
1265074658, 9781265074654
