nnovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are

$$$$5$ comma $300$ comma $0005,300,000.$

The product is expected to generate profits of

$$$$1$ comma $300$ comma $0001,300,000$

per year for

$1010$

years. The company will have to provide product support expected to cost

$$$$99$ comma $00099,000$

per year in perpetuity. Assume all income and expenses occur at the end of each year.

a$.$ What is the NPV of this investment if the cost of capital is

$5\mathrm{.}11\%5\mathrm{.}11\%?$

Should the firm undertake the$$ project? Repeat the analysis for discount rates of

$1\mathrm{.}47\%1\mathrm{.}47\%$

and

$17\mathrm{.}97\%17\mathrm{.}97\%,$

respectively.

b$.$ How many IRRs does this investment opportunity$$ have?

$($Hint$$:

Consider the two alternative discount rates we used in our analysis in part

a$.)$

c$.$ Can the IRR rule be used to evaluate this$$ investment? Explain.