# You are CEO of Rivet Networks, maker of ultra-high performance network cards for gaming computers, and...

###### Question:

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$803,000, growing to $1.44 million the second year, and then declining by 45% 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 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 10.3%? 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. 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 1 803,000 $0$ Revenues YOY growth Variable costs % of sales Fixed costs 50% Investment (907,000) (907,000) Total cash flows

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