A start-up firm as developed a new email app that allows the user to decide what...

A start-up firm as developed a new email app that allows the user to decide what mail gets into their mail box. This company doesn't have a lot of start-up capital and they are funded by a Venture Capital firm that wants an expected 18% return. They are going to use the Agile model and release various versions of their app overtime as they see what works. There 3- year start up plan includes: Initial Development Expenses of $100,000 per month Starting Jan 31, 2021 for 3 months, followed by routine expenses of $20,000 per month. They will launch April 30, 2021 with a $120,000 advertising/marketing push. Sales will begin April 2021 at $5,000 per month and go up by 10% per month through Dec 31, 2023. What will the return on investment be for the firm and will it be a good investment? Assume all expenses are applied at the end of the month. Please use Excel and show equations

Expert Solution

Monthly IRR is 0.2% whereas
Annual IRR is (1 + 0.2%)^12 - 1 = 2.4178% which is less than the expected return of 18% required by the venture capital and hence it wont be a good investment.

jeff jeffy answered 2 years ago

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