You are tasked with making a recommendation as to what the company should do.

You explore how much it would cost to build a similar product with your own technology team and you work with the sales team to understand the revenue potential if you brought the product to market. You come up with the following projections:

• It would cost $3M to build the solution in-house and it could be ready to go-to-market quickly--at the same time as an acquisition could be done.

• Since the new solution would be competing with the startup, revenues would be less than the startups current revenues: $1M in Year 1, growing by $100K each year through Year 5, after which it would stabilize at grow at 2% per year in perpetuity.

• Ongoing costs (after the $3M investment) to service the solution and provide routine enhancements would be 40% of revenues.

In addition, you approach the CEO of the startup, and they are willing to sell. You develop the following projections:

• It will cost $10M to buy the entire company.

• Revenues would be $2M in Year 1 and increase $150K each year through Year 5, after which it would stabilize and grow 2% per year in perpetuity.

• Ongoing costs (after the acquisition cost) to service the product and provide routine enhancements would be 45% of revenues.

1. For both the build and buy options, calculate the following:

   1. the Present Value (PV) of the future cash flows

   2. the Net Present Value (NPV) of the entire scenario

   3. the five-year ROI of the investment

   4. the five-year Internal Rate of Return