Answer:
Yes, it can lower its price by more than $2,000 and still earn a larger than required profit.
Explanation:
current annual fee = $10,100
investment = -$14,900
cash flows 1-3 = $10,100 - $1,900 = $8,200
discount rate 10.1%
NPV = -$14,900 + $8,200/1.101 + $8,200/1.101² + $8,200/1.101³ = -$14,900 + $7,447.77 + $6,764.55 + $6,144 = $5,456.32
IRR = 30%
since the NPV is positive and the IRR is 30%, it means that the company will make a higher than expected profit from this transaction if it closes the sale at $10,100 per year. So, it has some margin to lower their bid to around $7,902 per year and still make enough profit to cover their required rate of return. At this price, the IRR = 10.1%.
