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Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $45,000 2 40,000 3 30,000 4 20,000 Thereafter 0 Expenses are expected to be 40% 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 $50,000 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 40%, what are the project cash flows in each year? (Enter your answers in thousands of dollars. Do not round Intermediate calculations. Round your answers to 2 decimal places.) Year Cash Flow $ 1234 c. If the opportunity cost of capital is 15%, what is project NPV? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) c. If the opportunity cost of capital is 15%, what is project NPV? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) NPV $ d. What is project IRR? (Do not round intermediate calculations. Round your answer to 2 decimal places.) IRR % Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $45,000 2 40,000 3 30,000 4 20,000 Thereafter 0 Expenses are expected to be 40% 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 $50,000 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 40%, what are the project cash flows in each year? (Enter your answers in thousands of dollars. Do not round Intermediate calculations. Round your answers to 2 decimal places.) Year Cash Flow $ 1234 c. If the opportunity cost of capital is 15%, what is project NPV? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) c. If the opportunity cost of capital is 15%, what is project NPV? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) NPV $ d. What is project IRR? (Do not round intermediate calculations. Round your answer to 2 decimal places.) IRR %
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Related Book For
Fundamentals of Corporate Finance
ISBN: 978-0077861629
8th edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus
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