Your R&D Group Has Developed and Tested a Computer Software

question 7

Essay

Your R&D group has developed and tested a computer software package that assists engineers to control the
proper chemical mix for the various process manufacturing industries. The total investment in developing the
product was estimated to be $1,500,000. If you decide to market the software, your first year operating net cash
flow is estimated to be $1,000,000. Because of market competition, product life will be about 4 years, and the
product's market share will decrease by 25% each year over the previous year's share. You are approached by a
big software house which wants to purchase the right to manufacture and distribute the product. Assuming that
your interest rate is 15%, for what minimum price would you be willing to sell the software?

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