Problem regarding the project evaluation

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Project Evaluation. Revenues generated by a new fad product are forecast as below:

Year Revenues

1 $40,000

2 30,000

3 20,000

4 10,00

Thereafter 0

Expenses are expected to be 40% 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 $45,000 in plant and equipment.

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

b) If the plant and equipment 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?

c) If the opportunity cost of capital is 12%, what is project NVP?

d) What is project IRR?

Reference no: EM131833629

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