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Calculate Project Cash Flows, NPV and IRR

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Revenues generated by a new fad product in each of the next 5 years are forecasted as follows:

Year Revenue
1 $40,000
2 30,000
3 20,000
4 10,000
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 $50,000 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 40%, what are the project cash flows in each year?

C. If the opportunity cost of capital is 10%, what is the projected NPV

D What is the project IRR

Please see attached template 7-21

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This solution calculates the project cash flows, NPV and IRR.

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