Revenues generated by a new fad product are forecast as
follows:
Year
Revenues
1
$60,000
2
30,000
3
20,000
4
10,000
Thereafter
0
Expenses...
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Accounting
Revenues generated by a new fad product are forecast asfollows:
Year
Revenues
1
$60,000
2
30,000
3
20,000
4
10,000
Thereafter
0
Expenses are expected to be 50% of revenues, and working capitalrequired in each year is expected to be 10% of revenues in thefollowing year. The product requires an immediate investment of$54,000 in plant and equipment.
a.
What is the initial investment in the product? Remember workingcapital.
Initial investment
$
b.
If the plant and equipment are depreciated over 4 years to asalvage value of zero using straight-line depreciation, and thefirm’s tax rate is 20%, what are the project cash flows in eachyear? (Enter your answers in thousands of dollars. Do notround intermediate calculations. Round your answers to 2 decimalplaces.)
Year
Cash Flow
1
$
2
3
4
c.
If the opportunity cost of capital is 10%, what is project NPV?(Negative amount should be indicated by a minus sign. Donot round intermediate calculations. Round your answer to 2 decimalplaces.)
NPV
$
d.
What is project IRR? (Do not round intermediatecalculations. Round your answer to 2 decimal places.)
IRR
%
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