er year over the 10-year period Customer acquisition cost: $300 per customer Value of capital equipment in year 10: $1M Average revenue per user: $250 per year Interest rate: 10% Expenses and revenue are listed and net cash flow per year is drawn in Figure 2.15. What is the NPV for this operator over this period? Broadband Telecommunications Technologies and Management Expenses Revenue Net cash flow -$ 20 000 000.00 -$ 20 000 000.00 -$ 6 300 000.00 $ 5 000 000.00 -$ 1 300 0000.00 -$ 2 100 000.00 $ 6 500 000.00 $ 4 400 000.00 -$ 2 640 000.00 $ 8 3 450 000.00 $ 5 810 000.00 -$ 3 342 000.00 $ 10 985 000.00 $ 7 643 3 000.00 -$ 954 600.00 $ 14 280 500.00 $ 9 325 900.00 -$ 5 440 980.00 $ 18 564 650.00 $ 13 123 670.00 -$ 6 983 274.00 $ 24 134 045.00 $ 17 150 771.00 -$ 8 988 256.20 $ 31 374 258.50 $ 22 386 002.30 -$ 11 594 733.06 $ 40 786 536.05 $ 29 191 802.99 -$ 14 983 152.98 $ 53 022 496.87 $ 38 039 343.89 Figure 2.15 Net cash flow over the period of present value analysis Answer NPV is calculated from Equation 2.1 to be $46.8M. At the interest rate of 10% this product is profitable. Closely related with NPV is the Breakeven Point parameter which shows when a product first turns an overall profit considering all expenses-to-date, taking interest rate into account. Adding all cash flows from the table in Figure 2.15 we can see that sometime in year 5 the company breaks even. Another important parameter measure of product profitability is internal rate of return (IRR). IRR is the interest rate that makes NPV equal to zero. It is in essence the highest Technology, Business and Policy possible interest rate that the company may borrow money before it starts losing money. It is denoted by I in the following formula: (2.2) For Example 2.1, IRR is calculated to be 33%. In effect any $1 invested in this project returns 33c a year over the life of the project (10 years). If this is an acceptable investment for the company considering the risks then it will go ahead with the service. Both NPV and IRR are functions within spread