Question: Innovation Company is thinking about marketing a new software product. Upfront cost to market and develop the product are $5 million. The product is expected to generate profits of $1 million per year for 10 years. The company will have to provide the product support expected to cost $100,000 per year 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 capital is 6%? Should the firm undertake the project? Repeat the analysis for discount rate of 2% and 11%.

b. How many IRRs does this investment opportunity have?

c. What does the IRR rule indicate about this investment?