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    This posting addresses investment NPV and IRR calculations

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    Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product is $5 million. The product is expected to generate profits of $1 million per year for 10 years. The company will have to provide product support expected to cost $100000 per yr.in perpetuity. Assume all profits and expenses occur at the end of the year.

    a) What is the NPV of this investment if the cost of capitol is 6%. Should the firm undertaken the project? Repeat the analysis for the discount rate of 2% and 12%.
    b) How many IRR's does this investment opportunity have ?
    c) Can the IRR rule be used to evaluate this investment? Explain.

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    Solution Preview

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    Solution Summary

    The solution provides the exact calculations for Innovation Company. Their NPV, IRR, and discount rate are thoroughly calculated.