Reference no: EM132517219

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?