Revenues generated are forcasted as follows: Year 1: $54,000 Year 2: $30,000 Yea

Question

Revenues generated are forcasted as follows:

Year 1: $54,000

Year 2: $30,000

Year 3: $20,000

Year 4: $10,000

thereafter 0

Expenses are expencted to be 50% of revenues and working capital required in each year is expected to be 10% of revenues the following year. The product requires an immediate investment of $50,000 in plant and equipment. The initial investment in the product is $55,400.

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 30%, what are the projected cash flows in each year? (Assume plant and equipment are worthless after 4 years)

Cash Flow Year 1: ????? ($18,705/$24,000 is not right)

Cash Flow Year 2: ????? ($11,905/$13,000 is not right)

Cash Flow Year 3: ????? ($9,655/$9,000 is not right)

Cash Flow Year 4: ????? ($7,405/$5,000 is not right)

If the opportunity cost of capital is 12%, what is the projects NPV? (Do NOT round intermediate calculations. Round your answer to 2 decimal places)

NPV: ???? (-$15,741.31/-$76,437.01 is not right)

What is the project IRR? (Do NOT round intermediate calculations. Round your answer to 2 decimal places) IRR: ????? (-6.71% is not right)

The above answers are what I came up with and I am not sure what I am doing wrong. My homework is still saying incorrect. Your help is much appreciated. Thanks

Explanation / Answer

Particular Year 1 Year 2 Year 3 Year 4 Revenue 54000 30000 20000 10000 Expense 27000 15000 10000 5000 Working Capital 3000 2000 1000 0 Depriciation 13850 13850 13850 13850 Earning Before Tax 10150 -850 -4850 -8850 Tax 30% 3045 Earning After Tax 7105 -850 -4850 -8850 Add Depriciation 20955 13000 9000 5000 -55400 Opportunity Cost 12% Discount Factor 0.892857143 0.797194 0.71178 0.6355181 Present Value of Cash Flow 18709.82143 10363.52 6406.022 3177.5904 Initial Investment -55400 NPV= PV of Cash inflow-PV of Cash outflow NPV   -16743.0455 IRR 5%

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