Reference no: EM132978726
Question: 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 $55,000 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 40%, 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 10%, what is the project's NPV?
d. What is project IRR?
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 40%, 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 10%, 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.)
d. What is project IRR? (Do not round intermediate calculations.
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