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What is the initial investment in the product

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Reference no: EM132540558

Revenues Year 1 $60,000 Year 2 45,000 Year 3 30,000 Year 4 10,000

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 $60,000 in plant and equipment.

Required:

a. What is the initial investment in the product? Remember 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 30%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end of 4 years.

c. If the opportunity cost of capital is 15%, what is the project's NPV?

d. What is project IRR?

Reference no: EM132540558

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