Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $55,000 2 45,000 3 25,000 4 15,000 Thereafter 0 Expenses are expected to be 40% of revenues, and working capital...

Revenues generated by a new fad product are forecast as follows:

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 $55,000 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’s tax rate is 40%, what are the project cash flows in each year? Assume the plant  and equipment are worthless at the end of 4 years.

c.If the opportunity cost of capital is 10%, what is the project's NPV?

d.What is project IRR?