Nintendo just demonstrated their new Nintendo Switch at E3. Nintendo spent $5 million developing the new device, $1 million each on three other prototypes, and an additional $100 million in research and development (their R&D expense for the one year ending December 30^th, 2021 was $1 billion).

The project will officially begin (t=0) in January 2023. At the end of 2027 (t=5), Nintendo expects this Nintendo Switch project to end and make way for OLED Nintendo Switch. The tooling and equipment required for producing the device will cost $2.5 billion. The tooling and equipment is classified as a seven-year asset and will be depreciated using Modified ACRS depreciation (.1429, .2449, .1749, .1249, .0893, .0892, .0893, .0446); no bonus depreciation will be used. The estimated market value of the tooling and equipment at the end of the project is $100 million. Nintendo plans to make millions of Switches. Their goal is to get 700,000 of them produced and sold in the first 5 years. In year one, Nintendo thinks they can sell 60,000 Switch. The following four years they expect quantity sold to grow by 40% per year. Nintendo believes that the Switch will sell for $20,000. Nintendo doesnt have much experience producing OLED Switch. Nintendo thinks the variable costs will be $13,000. Fixed costs $9.5 million per year. Net working capital for the OLED Nintendo Switch project will be 10% of sales and will occur with the timing of the cash flows for the year. Nintendos tax rate is 11% and they have a required return of 22%.

Nintendo also thinks to include charging cable which might only include in 50% of Nintendo Switch. While a charging cable usually sells for $50, Nintendo will offer a discount of 20% if you buy a charging cable with your switch. Variable costs for the charging cable are $10. There are no fixed costs, investments in NWC, or capital expenditures associated.

In this case a) What is the payback period? b) What is the profitability index? c) What is the IRR? d) What is the NPV?