Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Type or paste question here You are CEO of Rivet Networks. maker of ultra-high performance network cards for gaming computers, and you are considering whether
Type or paste question here
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 $900.000 to develop up front (year 0). and you expect revenues the first year of S810.000 growing to $1.44 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 S96.000 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 9.9%? 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, 0 2 4 OS 810.000 S Revenues YOY growth Variable costs 1.440.000 77.8% (40%) 40% % of sales 50% 50% 50% 50% 50% Fixed costs Investment (900.000 Total cash flows (900.000) b. Plot the NPV profile for this investment using discount rates from 0% to 40% in 10% increments. The graph depicting the correct NPV profile is: (Select the best choice below) OA OB SPV Profile PV Profile a 500.000 z 100 000 1000001 11 15 - 100.000 - 100.000 -300 000 Discour: Fee : DISCOUF: Re: c. What is the project's NPV if the project's cost of capital is 9.9%? The NPV is s Round to the nearest dollar.) 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. (For a zoom in on the NPV profile. Click here.) Based on the NPV profile the approximate internal rate of return is. (Round to the nearest integer.)Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started