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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:

   

YearRevenues
1$60,000    
230,000    
320,000    
410,000    
Thereafter0    

   

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.)

   

YearCash 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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