Find what is the initial investment in the product

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Reference no: EM133012294

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

Year 1 revenues: $56,000

Year 2 revenues $40,000

Year 3 revenues $30,000

Year 4 revenues $20,000

Thereafter - $0

Expenses are expected to be 50% 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.

Required:

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

Problem 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.

Problem c. If the opportunity cost of capital is 12%, what is the project's NPV?

Problem d. What is project IRR?

Reference no: EM133012294

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