Your firm has been hired to develop new software for the university's class registration system....
60.1K
Verified Solution
Link Copied!
Question
Finance
Your firm has been hired to develop new software for the university's class registration system. Under the contract, you will receive $ 506,000 as an upfront payment. You expect the development costs to be $ 441,000 per year for the next 3 years. Once the new system is in place, you will receive a final payment of $ 857,000 from the university 4 years from now.
a. What are the IRRs of this opportunity? (Hint: Build an Excel model which tests the NPV at 1% intervals from 1% to 40%. Then zero in on the rates at which the NPV changes signs.)
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 $ 1.2 million.
c. What is the IRR of the opportunity now? d. Is it attractive at the new terms?
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
