Question

In: Accounting

Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $40,000 2...

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

Year Revenues
1 $40,000
2 30,000
3 10,000
4 5,000
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 $42,000 in plant and equipment.

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 20%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end of 4 years. (Do not round intermediate calculations.)


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. Enter your answer as a percent rounded to 2 decimal places.)

Solutions

Expert Solution


Related Solutions

Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $40,000 2...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $40,000 2 30,000 3 20,000 4 5,000 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 $49,000 in plant and equipment. Required: a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $40,000 2...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $40,000 2 30,000 3 20,000 4 5,000 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 $49,000 in plant and equipment. Required: a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $40,000 2...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $40,000 2 20,000 3 15,000 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 $46,000 in plant and equipment. Required: a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $40,000 2...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $40,000 2 30,000 3 20,000 4 10,000 Thereafter 0 Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 10% of revenues in the following year. The product requires an immediate investment of $53,000 in plant and equipment. a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment are...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $40,000 2...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $40,000 2 30,000 3 10,000 4 5,000 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 $42,000 in plant and equipment. a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment are...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $60,000 2...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $60,000 2 40,000 3 30,000 4 10,000 Thereafter 0 Expenses are expected to be 30% of revenues, and working capital required in each year is expected to be 10% of revenues in the following year. The product requires an immediate investment of $81,000 in plant and equipment. b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line...
Revenues generated by a new fad product are forecast as follows year Revenues 1 $50,000 2...
Revenues generated by a new fad product are forecast as follows year Revenues 1 $50,000 2 40,000 3 20,000 4 10,000 Expenses are expected to be 50% 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 $40,000 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...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $55,000 2...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $55,000 2 45,000 3 25,000 4 15,000 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 $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...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $55,000 2...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $55,000 2 45,000 3 25,000 4 15,000 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 $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...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $45,000 2...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $45,000 2 35,000 3 25,000 4 20,000 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...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT