It is the old days and you are a corporate finance executive at Atari Corporation. You have been asked to evaluate from a corporate finance perspective the proposed development of the Atari Video Computer System $($VCS$).$ The developers think that the system stands a good chance of creating a large consumer demand for video games that people can play at home. The major innovation is that the VCS does not have built$-$in games but will play games from cartridges that plug into the system. You need to evaluate the VCS using net present value $($NPV$).$

The financial data are authentic $($real$)$ for the most part. Year $0$ of the project is $1976$ and year $1$ is $1977.$ Financial data for the VCS project are as follows:

If the Atari VCS goes into production, a capital investment of $$60,000,000$ will be required plus working capital of $$20,000,000.$ These amounts are invested or allocated in $1976.$

$$100,000,000$ has already been spent on researching and developing the product.

Demand for the Atari $2600$ is forecast for ten years as follows:

o $1977$: $250,000$ units.

o $1978$: $550,000$ units.

o $1979$: $1,000,000$ units.

o $1980$: $2,000,000$ units.

o $1981$: $4,000,000$ units.

o $1982$: $8,000,000$ units.

o $1983$: $400,000$ units.

o $1984$: $200,000$ units.

o $1985$: $200,000$ units.

o $1986$: $150,000$ units.

For the period $1977$ to $1982,$ the Atari VCS will sell for $$199$ per unit.

Increased competition during the period $1983$ to $1986$ will require large price discounts and the VCS will sell at $$99$ per unit during these years.

For each system sold, $2$ game cartridges will be sold at a price of $$15$ per cartridge.

The system has a variable cost of $$80$ and each game cartridge has a variable cost of $$10.$

The company will initially spend $$2,000,000$ each year on advertising but will increase this to $$5,000,000$ for the period $1983$ to $1986($in response to increased competition$).$

Fixed costs start at $$10,000,000$ but increase at $20$ percent each year as the division expands.

The capital investment will be depreciated on a straight$-$line basis to zero over the period of ten years.

All working capital will be returned in the final year of the project.

The taxation rate is $25$ percent. If you have a negative EBIT in any year, assume that the taxes for that year are zero.

You have determined that a discount rate of $22$ percent should be applied to the project.