pu 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 evelop up front (year 0), and you expect revenues the first year of $798,000, growing to $1.58 million the second year, and then declining by 45% per year for the next 3 years before the product is fully obsolete. In ears 1 through 5, you will have fixed costs associated with the product of $105,000 per year, and variable costs equal to 55% of revenues. -What are the cash flows for the project in years 0 through 5? Plot the NPV profile for this investment using discount rates from 0% to 40% in 10% increments. What is the project's NPV if the project's cost of capital is 10.7%? 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.) Revenues OS 798,000 YOY growth Variable costs % of sales 55% Fixed costs Investment (907,000) Total cash flows (907,000)
pu 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 evelop up front (year 0), and you expect revenues the first year of $798,000, growing to $1.58 million the second year, and then declining by 45% per year for the next 3 years before the product is fully obsolete. In ears 1 through 5, you will have fixed costs associated with the product of $105,000 per year, and variable costs equal to 55% of revenues. -What are the cash flows for the project in years 0 through 5? Plot the NPV profile for this investment using discount rates from 0% to 40% in 10% increments. What is the project's NPV if the project's cost of capital is 10.7%? 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.) Revenues OS 798,000 YOY growth Variable costs % of sales 55% Fixed costs Investment (907,000) Total cash flows (907,000)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:Pou 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 $798,000, growing to $1.58 million the second year, and then declining by 45% per year for the next 3 years before the product is fully obsolete. In
vears 1 through 5, you will have fixed costs associated with the product of $105,000 per year, and variable costs equal to 55% of revenues.
a. What are the cash flows for the project in years 0 through 5?
D. 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 10.7%?
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 throough 5?
Calculate the cash flows below: (Round to the nearest dollar.)
1
Revenues
$
O $
798,000
YOY growth
Variable costs
% of sales
55%
Fixed costs
Investment
(907,000)
Total cash flows
(907,000)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education