Revenues generated by new product are forecast

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Reference no: EM131089391

Revenues generated by a new product are forecast as follows: Year Revenue 1 $40,000 2 30,000 3 20,000 4 10,000 5 -0- no sales after year 4 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, including working capital? 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? C. If the opportunity cost of capital is 12%, what is the project NPV? Should the project be accepted or rejected?

Reference no: EM131089391

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