What is the initial investment in the product

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Reference no: EM132073525

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

Year Revenues

1 $54,000

2 30,000

3 20,000

4 10,000

Thereafter 0

Expenses are expected to be 50% of revenues, and working capital required in each year is expected to be 10% of revenues in the following year. The product requires an immediate investment of $50,000 in plant and equipment.

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

Initial investment $

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 30%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end of 4 years. (Do not round intermediate calculations.)

Year Cash Flow

1 $

c. If the opportunity cost of capital is 12%, what is the project's NPV? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

NPV $

d. What is project IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

IRR %

Reference no: EM132073525

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