Innovation Company is thinking about marketing a new software product. Up-front costs to market and develop the

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

A.What is the NPV of this investment if the cost of capital if 6%? Should the firm undertake the project? Repeat the analysis for discount rates of 2% and 11%.

B.How many IRRs does this investment opportunity have?

C.What does the IRR rule indicate about this investment?

Posted Date: May 18, 2024 10:03 AM

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