Innovation Co.is thinking about marketing a new software
product. The initial set-up cost is$5M (and is paid at t=0).At the
end of every year for the next 10 years (i.e., at t=1,2,...,10),
the productwill generate revenueof$1M.Afterthat,the product will be
outdated and will not be offered in the market anymore.However,the
company will have to provide customer supportin perpetuity, which
will cost $0.1M at the end of everyyear (i.e., at t=1,2,...,∞).The
cost of capital is10%and there is annual compounding frequency.
What is...