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Revenues produced by the new fad product are predict as follows:

Year 1 : 40,000
Year 2: 30,000
Year 3: 20,000
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 percent of revenues in following year. Product needs the immediate investment of $45,000 in plant and equipment.

a. Determine initial investment in product?

b. If plant and equipment are depreciated over 4 years to salvage value of zero by using straight-line depreciation, and firm's tax rate is 40%, prepare down project cash flows in each year?

c. If opportunity cost of capital is 12 percent, compute project NPV?

d. Determine project IRR?

Business Management, Management Studies

  • Category:- Business Management
  • Reference No.:- M933645

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