Your firm has been hired to develop new software for
theuniversity's class registration system. Under the contract,
you will receive $ 497,000 as an upfront payment. You expect the
development costs to be $ 439,000 per year for the next 3 years.
Once the new system is in place, you will receive a final payment
of $ 860,000 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.) Round to two decimal places
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?
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.) Round to two decimal places
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?
