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What are the project cash flows in each year

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Reference no: EM132538640

Revenues generated by a new fad product are forecast as follows:

Year Revenues

1 $45,000

2 40,000

3 30,000

4 20,000

Thereafter 0

  • Expenses are expected to be 40% 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 $50,000 in plant and equipment.

Required:

Question a. What is the initial investment in the product? Remember working capital.

Question 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? Assume the plant and equipment are worthless at the end of 4 years.

Question c. If the opportunity cost of capital is 15%, what is the project's NPV?

Question d. What is project IRR?

Reference no: EM132538640

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