Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $5,100,000. The product is expected to generate profits of $1,000,000 per year for 10 years. The company will have to provide product support expected to cost $97,000 per year in perpetuity. Assume all income and expenses occur at the end of the year.

a. What is the NPV of this investment if the cost of capital is 5.54%? Should the firm undertake the project? Repeat the analysis for discount rates of 2.72% and 10.46%.

b. How many IRRs does this investment opportunity have?

c. Can the IRR rule be used to evaluate this investment? Explain.