Innovation Company is thinking about marketing a new software product. Upfront costs to market and...
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Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $4.94 million. The product is expected to generate profits of $1.07 million per year for 10 years. The company will have to provide product support expected to cost $99,000 per year in perpetuity. Assume all profits and expenses occur at the end of the year.
- What is the NPV of this investment if the cost of capital is 5.8%? Should the firm undertake the project? Repeat the analysis for discount rates of 1.7% and 14.1%, respectively.
- What is the IRR of this investment opportunity?
- What does the IRR rule indicate about this investment?
Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $4.94 million. The product is expected to generate profits of $1.07 million per year for 10 years. The company will have to provide product support expected to cost $99,000 per year in perpetuity. Assume all profits and expenses occur at the end of the year.
- What is the NPV of this investment if the cost of capital is 5.8%? Should the firm undertake the project? Repeat the analysis for discount rates of 1.7% and 14.1%, respectively.
- What is the IRR of this investment opportunity?
- What does the IRR rule indicate about this investment?
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