Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $$4\mathrm{.}99$ million. The product is expected to generate profits of $$1\mathrm{.}07$ 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 is $6\mathrm{.}5\%?$ Should the firm undertake the project? Repeat the analysis for discount rates of $1\mathrm{.}7\%$ and $13\mathrm{.}8\%,$ respectively.

b$.$ What is the IRR of this investment opportunity?

c$.$ What does the IRR rule indicate about this investment?

a$.$ What is the NPV of this investment if the cost of capital is $6\mathrm{.}5\%?$ Should the firm undertake the project? Repeat the analysis for discount rates of $1\mathrm{.}7\%$ and $13\mathrm{.}8\%,$ respectively.

If the cost of capital is $6\mathrm{.}5\%,$ the NPV will be $ $($Round to the nearest dollar.$)$

Should the firm undertake the project? $($Select the best choice below.$)$

A$.$ Yes, because the NPV is equal to or greater than zero

B$.$ No$,$ because the NPV is not greater than the initial costs

C$.$ No$,$ because the NPV is less than zero

D$.$ There is not enough information to answer this question.

When $r=1\mathrm{.}7\%,$ the NPV will be $$,($Round to the nearest dollar.$)$

When $r=13\mathrm{.}8\%,$ the NPV will be $$,($Round to the nearest dollar.$)$

b$.$ What is the IRR of this investment opportunity? $($Select all the choices that apply.$)$

A$.$ From the answer to a$,$ there are at least two IRRs.

B$.$ There is at least one IRR between $1\mathrm{.}7\%$ and $6\mathrm{.}5\%.$

C$.$ There is at least one IRR between $6\mathrm{.}5\%$ and $13\mathrm{.}8\%.$

D$.$ There is only one IRR between $1\mathrm{.}7\%$ and $13\mathrm{.}8\%.$

c$.$ What does the IRR rule indicate about this investment?