You are considering purchasing a new database system for your company. The system will cost $80,000, and it will cost another $15,000 for equipment and training. The system is expected to be sold after three years, when you plan to outsource database activities. You hope that you can sell your system to a competitor for $12,000. You expect to save $22,000 per year in operating costs. Your corporate cost of capital is 10%.
a. What is the project’s net investment outlay at Year 0? (1 points)
b. What are the projects’ operating cash flows in Years 1, 2, and 3? (1 points)
c. What is the terminal cash flow at the end of Year 3? (1 points)
d. If the project has average risk, is it expected to be profitable? On what basis did you draw this conclusion? (2 points)
Naya
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