Revenues generated by a new fad product are forecast as follows:
| Year |
Revenues |
| 1 |
$60,000 |
| 2 |
40,000 |
| 3 |
30,000 |
| 4 |
20,000 |
| Thereafter |
0 |
Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 30% of revenues in the following year. The product requires an immediate investment of $70,000 in plant and equipment.
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? Assume the plant and equipment are worthless at the end of 4 years. (Do not round intermediate calculations.)
c. If the opportunity cost of capital is 10%, 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.)