29) 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 $907,000 to develop up front (year 0), and you expect revenues the first year of $805,000, growing to $1.52 million the second year, and then declining by 35% 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 $102,000 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 9.3%?

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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Part 1

a. What are the cash flows for the project in years 0 through 5?

Calculate the cash flows below:(Round to the nearest dollar.)

Year	0	1
Revenues	$0	$805,000
YOY Growth
Variable Costs
% of Sales		55%
Fixed Costs
Investment	(907,000)
Total Cash Flows	$(907,000)