Question
You are asked to check the feasibility of software development project. The initial development cost is $10M and the project will require an annual maintenance
You are asked to check the feasibility of software development project. The initial development cost is $10M and the project will require an annual maintenance by the team of engineers and product managers. The annual salary of the team member is $150K. In year 1, the project will require 5 team members and in years 2-4 it will require 10 team members. The subscription revenues start in year 2 and end in year 4 (3 years). The average client pays $2,000 per year and the company is expected to have 3,000 clients for each year. Assume that the cost of capital is 10%.
Determine the cash flow from the project in each year (0-4).
Calculate the projects NPV and IRR. Will you undertake the project?
Calculate the projects NPV if the cost of capital declines to 7%. Will you still undertake the project?
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