Your firm has been hired to develop new software for the university's class registration system. Under the contract, you will receive $500,000 as an upfront payment. You expect the development costs to be $450,000 per year for the next three years. Once the new system is in place, you will receive a final payment of $900,000 from the university four years from now.
a. What are the IRRs of this opportunity?
b. If your cost of capital is 10%, is the opportunity attractive? Suppose you are able to renegotiate the terms of the contract so that your final payment in year 4 will be $1 million.
c. What is the IRR of the opportunity now?
d. Is it attractive at these terms?

  • CreatedAugust 06, 2014
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