Revenues generated by a new fad product are forecast as follows:Year1234ThereafterRevenues$ 40,00030,00020,0005,0000Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 20% of revenues in thefollowing 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 are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm'stax rate is 20%, what are the project cash flows in each year?c. If the opportunity cost of capital is 10%, what is project NPV?d. What is project IRR?

Capital budgeting is a process that businesses use to evaluate and select long-term investment…

Required: 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? c. If the opportunity cost of capital is 10%, what is project NPV? d. What is project IRR?

Required: 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? c. If the opportunity cost of capital is 10%, what is project NPV? d. What is project IRR?

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 3CMA

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