Revenues generated by a new fad product are forecast as follows:
Year: Revenues:
1 $54,000
2 $30,000
3 $20,000
4 $10,000
Thereafter 0
Expenses are expected 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 the plant and equipment are worthless at the end of 4 years.
Cash Flow Year 1: ?
Cash Flow Year 2: ?
Cash Flow Year 3: ?
Cash Flow Year 4: ?
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: ?
What is project IRR? (Do not round intermediate calculations. Round your answer to 2 decimal places)
IRR % is: ?