Question No.

2: Software Company Problem Data

Market Data Current Market Size (units/yr)
Product type % (units/yr)
English | En 30% 90,000
French | Fr
300,000
Projected Market Size (units/yr)
Year Market size
10% 1 330,000.00
2 363,000.00
3 399,300.00
Market growth rate for the first 5 years
4 439,230.00
5 483,153.00
5% 6 507,310.65
7 532,676.18
8 559,309.99
Market growth rate after the first 5 years end
9 587,275.49
10 616,639.27
Company's Product Data
Unit price (p) Variable cost (c) Income (m)(p - c)
Product type
English | En $ 50.00 $ 10.00 $ 40.00
French | Fr

th
Total Revenue (M) and Units sold at the 10 year (n)

After incorporation of the French version, 40% growth rate expected in the company's market share within a 10 year planning
period. Thus, expected units sold (n) at the 10th years can be calculated by fractioning 40% from the projected market size at
the 10th year, being 616,639.27.
Epected Market share growth 40%
Thus, 40% x 616,639.27. 246,655.71

Expected Total revenue (M) at the 10th year

(Profit= n x m) $ 9,866,228.25

Assessing Profitability

To invest in translating the software to its French version, the investment should be profitable. That is, the revnue made should
be equal or greater than the investment plus the interest incurred

Constants in assessing profitability

Period of return in years (N) 10

Total investment (P) $ 6,000,000.00

Investment Data

Expected Total profit at the 10th year (M) $ 9,866,228.25

Investment's Prinipal (P) $ 6,000,000.00
Time of years (N) 10
Rate of interest (i) Variable

Accrued on Simple Interest Accrued on Compound Interest

ASI = P(1 + iN) ACI = P(1 + i)N

Profiability if M ≥ AsI Profiability if M ≥ ACI

M= $ 9,866,228.25

For Total accrued interest of M, $9866,228.25, We Employ Excel's Goal seelk Function to calculate interest rate (i)

Accrued on Simple Interest Accrued on Compound Interest

Break Even Interest

M $ 9,866,228.25 M $ 9,866,228.25
ASI $ 9,866,228.25 ACI $ 9,866,228.25
i 6.44% i 5.10%

So, depending on the method of interest calculation, in order for the investment to be profitable, the interest rate should be
equal to or less than 6.44% (for Simple Interest), and 5.10% (for Compound Interest)