Revenues generated by a new fad product are forecast as follows: Year 1 2 Revenues $60,000...

  

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Revenues generated by a new fad product are forecast as follows: Year 1 2 Revenues $60,000 45,000 IT 3 4 Thereafter 30,000 10,000 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 $60,000 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 30%, 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 1 Cash Flow $ 234 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 1 2 Revenues $60,000 45,000 IT 3 4 Thereafter 30,000 10,000 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 $60,000 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 30%, 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 1 Cash Flow $ 234 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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a To calculate the initial investment in the product we need to consider the immediate investment in plant ... View the full answer