What is the initial investment in the product

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Reference no: EM132630341

Revenues generated by a new fad product are forecasted as follows:

year revenues

1 60,000

2 45,000

3 30,000

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 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 the project IRR?

Reference no: EM132630341

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