Contemporary Engineering Economics (6th Edition)
Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Chapter 5, Problem 20P

Your R&D group has developed and tested a computer software package that helps engineers control the proper chemical mix for various process-manufacturing industries. If you decide to market the software, your first-year operating net cash flow is estimated to be $1,200,000. Because of market competition, product life will be about four years, and the product’s market share will decrease by 25% each year over the previous year’s share.

  1. (a) To protect the erosion of the market share, you need to upgrade the software every year at the expense of $200,000. Is it worth upgrading the software? Your interest rate is 15%.
  2. (b) You are approached by a big software house which wants to purchase the right to produce and distribute the software. For what minimum price would you be willing to sell the software?
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