Revenues generated by a new fad product

Reference no: EM131133896

Revenues generated by a new fad product are forecast as follows: $60,000 in year one, $40,000 in year two, $30,000 in year three, $10,000 in year four and $0 in each year after. 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. 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? Assume the plant and equipment are worthless at the end of 4 years. c) If the opportunity cost of capital is 10%, what is the project's NPV?

Reference no: EM131133896

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