Reference no: EM133076354
You are CEO of Rivet? Networks, maker of? ultra-high performance network cards for gaming? computers, and you are considering whether to launch a new product. The? product, the Killer? X3000, will cost $908,000 to develop up front? (year 0), and you expect revenues the first year of $809,000?, growing to $1.55 million the second? year, and then declining by 40% per year for the next 3 years before the product is fully obsolete. In years 1 through? 5, you will have fixed costs associated with the product of $110,000 per? year, and variable costs equal to 55% of revenues.
a. What are the cash flows for the project in years 0 through? 5?
b. Plot the NPV profile for this investment using discount rates from? 0% to? 40% in? 10% increments.
c. What is the? project's NPV if the? project's cost of capital is 9.8%??
d. Use the NPV profile to estimate the cost of capital at which the project would become? unprofitable; that? is, estimate the? project's IRR.
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