What is the net present value of investment

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Capital Budgeting

Tableau is thinking about marketing a new financial software product. Upfront costs to develop and market the product are $3 million. The product is expected to generate profits of $1.25 million per year for 7 years. The company will also have to provide product support expected to cost $60,000 per year in perpetuity starting in Year 1. Assume all profits and expenses occur at the end of the year.

(a) What is the net present value (NPV) of this investment if the cost of capital is 7%? Should the firm undertake the project?

(b) Can the IRR rule be used to evaluate this investment? Why or why not?

Reference no: EM132807327

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