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network cards for gaming computers, and you are considering whether to launch a new product. The product, the Killer x 3 0 0 0 ,

network cards for gaming computers, and you are considering whether
to launch a new product. The product, the Killer x3000, will cost
$900,000 to develop up front (year 0), and you expect revenues the first
year of $800,000, growing to $1.50 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 $100,000 per year, and variable costs equal to 50% 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 10.0%?
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.
a. What are the cash flows for the project in years 0 through 5?
Calculate the cash flows below: (Round to the nearest dollar.)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 $900 comma 000900,000 to develop up front(year 0), and you expect revenues the first year of $800 comma 000800,000, growing to $1.501.50 million the second year, and then declining by 40%40% per year for the next 3 years before the product is fully obsolete. In years 1 through5, you will have fixed costs associated with the product of $100 comma 000100,000 per year, and variable costs equal to 50%50% of revenues.
a. What are the cash flows for the project in years 0 through5?
b. Plot the NPV profile for this investment using discount rates from0% to40% in10% increments.
c. What is the project's NPV if the project's cost of capital is 10.0%10.0%?
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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