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Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $46,000 2 30,000 3 20,000 4 10,000 Thereafter 0 Expenses are expected to be 50% of revenues, and working capital

Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $46,000 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 $51,000 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 1 $ 2 3 4 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 %

 

Jun 04 2021 View more View Less

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