Part 1

Textflix is a new idea to help reduce college student cost of textbooks. Textflix is a new project to be undertaken by the Netflix Corporation.Textflix will charge $20 per month to have access to a large library of textbooks. It expects to have 8,000 users in first year, 20,000 in second and 150,000 in third.To build out this new project, new infrastructure for space and new tech equipment will cost $3,000,000. The costs of each sale will be approximately $99 per year in licensing fees, maintenance, app space, and all the other good things we should consider. Depreciation will be 16% year 1, 24% year 2 and 20% year 3 and the building and equipment will be sold for 60% of original purchase price in year 3. Tax rate is 21%. Since this is a new project by an existing firm, we will assume this new project matches the overall risk of the current firm, thus we can use the firm's cost of capital directly, which is 10.5% (required rate of return). Net working capital invested for the project will be 1,000,000 today and will be recovered in full at the end of the project. The company has 3,000,000 shares outstanding.