Problem: MTV is considering the purchase of a new network system. The network is call MTV2 and is expected to reduce the amount of time that the technicians spend installing software applications. MTV currently spends 7000 hours a month on installations, which cost MTV $20 per hour. The owners of MTV2 claim that their network can reduce time by at least 25%. The network requires an initial investment of $65,000 and an additional investment of $15,000 for tech training on the new system. Annual upgrades will cost MTV $20,000 per year. The investment will be fully expensed in the year of expenditure (no depreciation). MTV faces a 30% tax rate and uses a 9% cost of capital to evaluate projects of this type.
1) Assuming MTV has sufficient taxable income from other projects so that it can expense the cost of the network immediately, what are the project free cash flows for the project for years 0 through 5?
2) Calculate the NPV and IRR for the project.