Revenues generated by a new fad product are forecast

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Reference no: EM131603391

Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $50,000 2 20,000 3 10,000 4 5,000 Thereafter 0 Expenses are expected to be 60% 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 $52,000 in plant and equipment. a. What is the initial investment in the product? Remember working capital. 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. If the opportunity cost of capital is 10%, what is the project's NPV? What is project IRR?

Reference no: EM131603391

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