What are the irrs of the given opportunity

Assignment Help Finance Basics

Reference no: EM132065925

Question: 1. 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 $450,000 per year for the next 33 years. Once the new system is in place, you will receive a final payment of $900,000 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 $ 1.0 million.

c. What is the IRR of the opportunity now?

d. 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 %, is the opportunity attractive? If your cost of capital is 10 %?

(a) the opportunity is it attractive

(b) is it not attractive

Suppose you are able to renegotiate the terms of the contract so that your final payment in year 4 will be $1.0 million.

C. What is the IRR of the opportunity now? (Select the best choice below.)

A. Now there are 3 IRRs.

B. The IRR rule always gives the wrong answer.

C. Now there are no IRRs.

D. The IRR rule works as before.

D. Is it attractive at the new terms? If your cost of capital is 10%, the opportunity______

(a) attractive

(b) is not attractive

Reference no: EM132065925

Questions Cloud

What is the initial outlay of the given project : The Immokalee Vegetable Company is considering replacing some vegetable packing equipment. The cost of the new packing machine is $265,000.

Number of potential capital investments : Hearne Company has a number of potential capital investments. Determine each project's accounting rate of return. Determine each project's payback period.

How much tax was actually paid in the year : Its income statement for the year to 30.6.X5 includes a tax charge of £400,000. How much tax was actually paid in the year to 30.6.X5

What constraints did you experience : As an IT manager, discuss how you would use the materials in Chapter 11 of your textbook communicating IT information to other department.

What are the irrs of the given opportunity : 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).

What amount should be amortized for first six-month period : Using the effective interest amortization method, what amount should be amortized for the first six-month period

Why specific languages are dominant in turkey : Why specific languages are dominant in turkey? How did they get there? Why are they so important?

Provide your interpretation of the relationship : Provide your interpretation of the relationship between those being observed. Be very discrete and do not have a conversation with those being observed.

New project available that requires initial investment : Stackhouse Industries has a new project available that requires an initial investment of $4.5 million.

User Account

All Pages