Calculate the following cash flows for each year: Initial investment $4,000,000 Project life: 4 years Revenue per year: 2,000,000 Royalty (cost) is 10% of revenue Other expenses: $100,000 DD&A (Depreciation and Amortization) : $260,000 Tax is 30% (of gross income less depreciation)
a. Calculate the net income for each year.
b. calculate the cash flow (net income + depreciation) for each year.
c. What is the net present value (NPV) for this investment (discount rate = 10%)? Should you invest and why?
d. What is the internal rate of return (IRR) for this investment?