Expenses are expected to be 40% of revenues, and working capital required in eac

Question

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.

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.)

If the opportunity cost of capital is 12%, 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.)

What is project IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

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

Explanation / Answer

Answer:

a)

b)

c)

d)

Using the IRR function in excel, {=IRR(values)}. for the following cashflow:

IRR = 4.58% (ans)

Initial Investment: in$ Cost of plant and equipment 53000 Working capital required 4000 ($40000*10%) Total 57000

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