Revenues generated by a new fad product are forecast as follows: Revenues $65.000 50,000 40,000 Year 1 4 30,000 Thereafter 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. 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 40%, 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.)
Revenues generated by a new fad product are forecast as follows: Revenues $65.000 50,000 40,000 Year 1 4 30,000 Thereafter 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. 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 40%, 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.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![Revenues generated by a new fad product are forecast as follows:
Year
Revenues
$65,000
50,000
40,000
30,000
1
3.
4.
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.
a. What is the initial investment in the product? Remember working capital.
Initial investment
$4
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 40%, 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
%24
123](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa3f86440-c463-4c9d-9297-c21c197940b5%2F39c6a1c3-4adf-4d13-9dc1-dc8e872b453a%2Fa5n802_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Revenues generated by a new fad product are forecast as follows:
Year
Revenues
$65,000
50,000
40,000
30,000
1
3.
4.
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.
a. What is the initial investment in the product? Remember working capital.
Initial investment
$4
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 40%, 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
%24
123
![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 40%. 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.
4
c. If the opportunity cost of capital is 15%, 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
$4
d. What is project IRR? (Do not round intermediate calculations. Round your answer to
2 decimal places.)
IRR
%24
%24](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa3f86440-c463-4c9d-9297-c21c197940b5%2F39c6a1c3-4adf-4d13-9dc1-dc8e872b453a%2Fu9s2s3i_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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 40%. 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.
4
c. If the opportunity cost of capital is 15%, 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
$4
d. What is project IRR? (Do not round intermediate calculations. Round your answer to
2 decimal places.)
IRR
%24
%24
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