Question $2$

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?

c$.$ Suppose you are able to renegotiate the terms of the contract so that your final payment in year $4$ will be $$1$ million.

d$.$ What is the IRR of the opportunity now?

e$.$ Is it attractive at these terms?