Each problem should be placed in different sheet in Excel file.

Show all intermediate processes and calculation in Excel cell.

Make timeline and cashflow table as clear as possible. This will help you to get partial credits.

Excel file should be submitted.

1.

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 $899,000 to develop upfront (year 0), and you expect revenues the first year of $803,000, growing to $1.41 million the second year, and then declining by 35% 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 $95,000 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 5% increments.

c) What is the projects NPV if the projects cost of capital is 10.6%?

d) Use the NPV profile and Excel Solver to estimate the cost of capital at which the project would become unprofitable; that is, estimate the projects IRR.