Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the
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Question:
Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $ million. The product is expected to generate profits of $ million per year for years. The company will have to provide product support expected to cost $ 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 is Should the firm undertake the project? Repeat the analysis for discount rates of and
b How many IRRs does this investment opportunity have?
c Can the IRR rule be used to evaluate this investment? Explain.
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