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Year Revenues 1 $60,000     2 40,000     3 30,000     4 10,000     Thereafter 0...

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.

   

a. What is the initial investment in the product? Remember working capital.

   

  Initial investment $   

    

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? (Enter your answers in thousands of dollars. Do not round intermediate calculations. Round your answers to 2 decimal places.)

   

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. Do not round intermediate calculations. Round your answer to 2 decimal places.)

    

  NPV $   

   

d.

What is project IRR? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

IRR %

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