Homework SourseYour firm has been hired to develop new software for the uni
Your firm has been hired to develop new software for the? university\'s class registration system. Under the? contract, you will receive
$505,000
as an upfront payment. You expect the development costs to be
$433,000
per year for the next
33
years. Once the new system is in? place, you will receive a final payment of
$834,000
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?
Solution
a) So, IRR is 85.742574%
b) At Kc= 10%, NPV is negative i.e ($ 3,625,978.20), so project is not viable
However , If final Payment in year 44 will be $1,020,000
Even then NPV would be negative i.e. ($ 3,623,171.25)
c)Now IRR is = same as before i.e 85.742574 %
d) No, the project is not attractive at all and should not bee selected
FULL EXCEL MODEL COULD NOT BE UPLOADED AS MAXIMUM CHARACTERS ALLOWED IS 65000 CHARACTERS
| Years | Inflow | Outflow | PV Inflow @1% | PV Outlow @1% | PV Inflow @2% | PV Outlow @2% | PV Inflow @3% | PV Outlow @3% | PV Inflow @4% | PV Outlow @4% | PV Inflow @5% | PV Outlow @5% | PV Inflow @6% | PV Outlow @6% | PV Inflow @7% | PV Outlow @7% | PV Inflow @8% | PV Outlow @8% | PV Inflow @9% | PV Outlow @9% | PV Inflow @10% | PV Outlow @10% | PV Inflow @11% | PV Outlow @11% | PV Inflow @12% | PV Outlow @12% | PV Inflow @13% | PV Outlow @13% | PV Inflow @14% | PV Outlow @14% | PV Inflow @15% | PV Outlow @15% | PV Inflow @16% | PV Outlow @16% | PV Inflow @17% | PV Outlow @17% | PV Inflow @18% | PV Outlow @18% | PV Inflow @19% | PV Outlow @19% | PV Inflow @20% | PV Outlow @20% | PV Inflow @21% | PV Outlow @21% | PV Inflow @22% | PV Outlow @22% | PV Inflow @23% | PV Outlow @23% | PV Inflow @24% | PV Outlow @24% | PV Inflow @25% | PV Outlow @25% | PV Inflow @26% | PV Outlow @26% | PV Inflow @27% | PV Outlow @27% | PV Inflow @28% | PV Outlow @28% | PV Inflow @29% | PV Outlow @29% | PV Inflow @30% | PV Outlow @30% | PV Inflow @31% | PV Outlow @31% | PV Inflow @32% | PV Outlow @32% | PV Inflow @33% | PV Outlow @33% | PV Inflow @34% | PV Outlow @34% | PV Inflow @35% | PV Outlow @35% | PV Inflow @36% | PV Outlow @36% | PV Inflow @37% | PV Outlow @37% | PV Inflow @38% | PV Outlow @38% | PV Inflow @39% | PV Outlow @39% | PV Inflow @40% | PV Outlow @40% | PV @ 85.742574% Of Inflow | PV @ 85.742574% Of Outlow |
| 1043301.52 | 12119536.87 | 853946.22 | 10387048.02 | 732158.07 | 8991587.84 | 653490.65 | 7857930.58 | 602462.35 | 6929103.81 | 569225.57 | 6161689.42 | 547489.33 | 5522391.08 | 533217.65 | 4985513.66 | 523810.49 | 4531102.78 | 517586.01 | 4143564.21 | 513451.91 | 3810634.22 | 510696.04 | 3522607.46 | 508852.25 | 3271755.11 | 507614.28 | 3051883.95 | 506780.17 | 2858000.61 | 506216.23 | 2686054.52 | 505833.66 | 2532740.06 | 505573.27 | 2395343.59 | 505395.46 | 2271624.44 | 505273.65 | 2159721.91 | 505189.94 | 2058082.23 | 505132.23 | 1965400.88 | 505092.33 | 1880576.85 | 505064.66 | 1802676.07 | 505045.41 | 1730902.21 | 505031.98 | 1664573.12 | 505022.58 | 1603101.70 | 505015.99 | 1545980.44 | 505011.36 | 1492768.77 | 505008.08 | 1443082.59 | 505005.77 | 1396585.75 | 505004.13 | 1352982.96 | 505002.96 | 1312013.85 | 505002.13 | 1273448.03 | 505001.54 | 1237081.00 | 505001.11 | 1202730.64 | 505000.80 | 1170234.25 | 505000.58 | 1139446.10 | 505000.43 | 1110235.23 | 505000.31 | 1082483.70 | 505000.00 | 505000.00 | |||
| NPV = | -11076235.36 | NPV = | -9533101.80 | NPV = | -8259429.77 | NPV = | -7204439.92 | NPV = | -6326641.45 | NPV = | -5592463.85 | NPV = | -4974901.75 | NPV = | -4452296.02 | NPV = | -4007292.29 | NPV = | -3625978.21 | NPV = | -3297182.30 | NPV = | -3011911.42 | NPV = | -2762902.86 | NPV = | -2544269.67 | NPV = | -2351220.44 | NPV = | -2179838.29 | NPV = | -2026906.40 | NPV = | -1889770.33 | NPV = | -1766228.99 | NPV = | -1654448.26 | NPV = | -1552892.29 | NPV = | -1460268.65 | NPV = | -1375484.52 | NPV = | -1297611.41 | NPV = | -1225856.81 | NPV = | -1159541.14 | NPV = | -1098079.11 | NPV = | -1040964.45 | NPV = | -987757.41 | NPV = | -938074.50 | NPV = | -891579.98 | NPV = | -847978.83 | NPV = | -807010.88 | NPV = | -768445.89 | NPV = | -732079.46 | NPV = | -697729.53 | NPV = | -665233.45 | NPV = | -634445.51 | NPV = | -605234.80 | NPV = | -577483.39 | NPV = | 0.00 |
