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Your firm has been hired to develop new software for the universities class registration system. Under the contract, you will receive $502,000 as an upfront
Your firm has been hired to develop new software for the universities class registration system. Under the contract, you will receive $502,000 as an upfront payment. You expect the development costs to be $456,000 per year for the next 3 years. Once the new system is in place, you will receive a final payment of $906,000 from the university 4 years from now.
A) what is the IRRs of this opportunity? (Hint: build an excel model which tests the NPV at 1% to 40% and then zero in on the rates at which the NPV changes signs)
B) if your cost of capital is 10%, is this opportunity attractive?
Suppose you are able to renegotiate the terms of the contract so that your final payment in year 4 will be $1.3 million.
C) what is the IRR of the opportunity now?
D) is it attractive at the new terms?
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