Revenues generated by a new fad product are forecast as follows: Year 1 Revenues $ 40,000...

Transcribed Image Text:

Revenues generated by a new fad product are forecast as follows: Year 1 Revenues $ 40,000 2 3 4 Thereafter 30,000 10,000 5,000 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 $42,000 in plant and equipment. Required: a. What is the initial investment in the product? Remember working capital. 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 20%, what are the project cash flows in each year? c. If the opportunity cost of capital is 10%, what is project NPV? d. What is project IRR? Complete this question by entering your answers in the tabs below. Req A Req B Req C and D c. If the opportunity cost of capital is 10%, what is project NPV? Note: A negative value should be indicated by a minus sign. Do not round intermediate calcu decimal places. d. What is project IRR? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 d c. NPV d. IRR $ (1,379.57) 13.06 % Req B Req C and D < Prev 8 of 15 Next > Revenues generated by a new fad product are forecast as follows: Year 1 Revenues $ 40,000 2 3 4 Thereafter 30,000 10,000 5,000 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 $42,000 in plant and equipment. Required: a. What is the initial investment in the product? Remember working capital. 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 20%, what are the project cash flows in each year? c. If the opportunity cost of capital is 10%, what is project NPV? d. What is project IRR? Complete this question by entering your answers in the tabs below. Req A Req B Req C and D c. If the opportunity cost of capital is 10%, what is project NPV? Note: A negative value should be indicated by a minus sign. Do not round intermediate calcu decimal places. d. What is project IRR? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 d c. NPV d. IRR $ (1,379.57) 13.06 % Req B Req C and D < Prev 8 of 15 Next >