Your firm has been hired to develop new software for the university's class registration system. Under the contract, you will receive $491,000 as an upfront payment. You expect the development costs to be $430,000 per year for the next 3 years. Once the new system is in place, you will receive a final payment of $839,000 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.) b. If your cost of capital is 10%, what is the NPV of the opportunity? Is it attractive? 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? d. What is the NPV of the opportunity now? Is it attractive at the new terms? 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.) The IRRS of the project in ascending order are ☐ % and ☐ %. (Round to two decimal places.) b. If your cost of capital is 10%, what is the NPV of the opportunity? If your cost of capital is 10%, the NPV of the opportunity is $ (Round to the nearest cent.) Is it attractive? The opportunity because its NPV is (Select from the drop-down menus.) c. Suppose you are able to renegotiate the terms of the contract so that your final payment in year 4 will be $1.2 million. What is the IRR of the opportunity now? (Select the best choice below.) A. The IRR rule works as before. OR Now there are 3 IRRS
Your firm has been hired to develop new software for the university's class registration system. Under the contract, you will receive $491,000 as an upfront payment. You expect the development costs to be $430,000 per year for the next 3 years. Once the new system is in place, you will receive a final payment of $839,000 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.) b. If your cost of capital is 10%, what is the NPV of the opportunity? Is it attractive? 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? d. What is the NPV of the opportunity now? Is it attractive at the new terms? 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.) The IRRS of the project in ascending order are ☐ % and ☐ %. (Round to two decimal places.) b. If your cost of capital is 10%, what is the NPV of the opportunity? If your cost of capital is 10%, the NPV of the opportunity is $ (Round to the nearest cent.) Is it attractive? The opportunity because its NPV is (Select from the drop-down menus.) c. Suppose you are able to renegotiate the terms of the contract so that your final payment in year 4 will be $1.2 million. What is the IRR of the opportunity now? (Select the best choice below.) A. The IRR rule works as before. OR Now there are 3 IRRS
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
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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 $491,000 as an upfront payment. You expect the development
costs to be $430,000 per year for the next 3 years. Once the new system is in place, you will receive a final payment of $839,000 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.)
b. If your cost of capital is 10%, what is the NPV of the opportunity? Is it attractive?
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?
d. What is the NPV of the opportunity now? Is it attractive at the new terms?
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.)
The IRRS of the project in ascending order are ☐ % and ☐ %. (Round to two decimal places.)
b. If your cost of capital is 10%, what is the NPV of the opportunity?
If your cost of capital is 10%, the NPV of the opportunity is $
(Round to the nearest cent.)
Is it attractive?
The opportunity
because its NPV is
(Select from the drop-down menus.)
c. Suppose you are able to renegotiate the terms of the contract so that your final payment in year 4 will be $1.2 million. What is the IRR of the opportunity now? (Select the best choice below.)
A. The IRR rule works as before.
OR Now there are 3 IRRS
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