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 $ 446,000 per year for the next 33 years. Once the new system is in? place, you will receive a final payment of $878,000 from the university 44 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 % is the opportunity? attractive? Suppose you are able to renegotiate the terms of the contract so that your final payment in year 44 will be $ 1.2 million.
c. What is the IRR of the opportunity? now?
d. Is it attractive at the new? terms?