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Obsolete Computer Systems, Inc. wants to emerge as a major producer of computer software. The company has two options: Either it can purchase Upstart Software for $25m now whose products are expected to survive 5 years. Or it can develop an ongoing new line of software via research and development expected to cost $5m per year with implementation costs of $25m in 4 years. Using reasonable cash flow estimates from each product line, the Obsolete CFO has estimated that the internal rate of return from purchasing Upstart Software is 15% and the IRR of in-house R&D is 14%. As a member of Obsolete’s board of directors (and an ERAU alum who knows how misleading IRR analysis can be…hint), you should vote against the CFO’s recommendation to purchase Upstart Software. (True, False, Uncertain and explain your response)

Financial Management, Finance

  • Category:- Financial Management
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