Your firm has been hired to develop new software for the university's class registration system. Under the contract, you will receive $500,000 an upfront payment. You expect the development costs to be $447,000 per year for the next 3 years. Once the new system is in place, you receive a final payment of $881,000 from the university 4 years from now. a. What are the IRRs of this opportunity? (Hint: Build an Excel model which tests the NPV at 1% intervals from 1% to 40%. Then zero in on rates at which the NPV changes signs.) MECHI Suppose you are able to renegotiate the terms of the contract so that your final payment in year 4 will be $1.2 million. c. What is the IRR of the opportunity now? (Select the best choice below.)
Your firm has been hired to develop new software for the university's class registration system. Under the contract, you will receive $500,000 an upfront payment. You expect the development costs to be $447,000 per year for the next 3 years. Once the new system is in place, you receive a final payment of $881,000 from the university 4 years from now. a. What are the IRRs of this opportunity? (Hint: Build an Excel model which tests the NPV at 1% intervals from 1% to 40%. Then zero in on rates at which the NPV changes signs.) MECHI Suppose you are able to renegotiate the terms of the contract so that your final payment in year 4 will be $1.2 million. c. What is the IRR of the opportunity now? (Select the best choice below.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
When I adjust the cash flows in Excel to reflect the new payment in year 4, no IRRs appear. However, I’m not sure if that’s the correct answer. Could someone help?
Transcribed Image Text:Your firm has been hired to develop new software for the university's class registration system. Under the contract, you will receive $500,000 as
an upfront payment. You expect the development costs to be $447,000 per year for the next 3 years. Once the new system is in place, you will
receive a final payment of $881,000 from the university 4 years from now.
a. What are the IRRs of this opportunity? (Hint: Build an Excel model which tests the NPV at 1% intervals from 1% to 40%. Then zero in on the
rates at which the NPV changes signs.)
Suppose you are able to renegotiate the terms of the contract so that your final payment in year 4 will be $1.2 million.
c. What is the IRR of the opportunity now? (Select the best choice below.)
A. Now there are 3 IRRs.
OB. The IRR rule works as before.
C. Now there are no IRRS.
OD. The IRR rule always gives the wrong answer.
Transcribed Image Text:0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
0.1
0.11
0.12
0.13
0.14
0.15
0.16
0.17
0.18
0.19
0.2
0.21
0.22
0.23
500,000
-447,000
-447,000
-447,000
1,200,000
338,556.0
319,518.7
301,795.2
285,299.3
269,951.1
255,676.1
242,405.0
230,073.5
218,621.5
207,993.3
198,136.7
189,003.1
180,547.3
172,726.8
165,502.3
158,836.7
152,695.6
147,046.7
141,859.7
137,106.5
132,760.5
128,797.0
125 192 7
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