Revenues generated by a new fad product are forecast as follows: Year 1 2 3 4...

Transcribed Image Text:

Revenues generated by a new fad product are forecast as follows: Year 1 2 3 4 Revenues $ 60,000 40,000 30,000 10,000 Thereafter Expenses are expected to be 30% of revenues, and working capital required in each year is expected to be 10% of revenues in the following year. The product requires an immediate investment of $81,000 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 What is the initial investment in the product? Remember working capital. Initial investment Revenues generated by a new fad product are forecast as follows: Year 1 2 3 4 Revenues $ 60,000 40,000 30,000 10,000 Thereafter Expenses are expected to be 30% of revenues, and working capital required in each year is expected to be 10% of revenues in the following year. The product requires an immediate investment of $81,000 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 What is the initial investment in the product? Remember working capital. Initial investment