PQL Airlines is developing a new baggage check in system that is expected to cost $2,000,000 and they believe will be functional for 5 years. This system will be classified as a 3 year asset for MACRS and they expect to sell the physical part of the system after that point for $50,000. While this system would not necessary generate any additional revenue from passengers, there would be able to license the system to other airlines and expect to generate licensing revenues of $800,000 a year. In addition, there is an expected reduction in labor cost of $35,000 annually. The 3 year MACRS table is: Year 1 – 33%; Year 2 – 45%; Year 3 – 15%; and year 4 – 7%.
Please calculate the Cash Flow from Assets for this project.
Then given a WACC of 9.5%, calculate the NPV, IRR, MIRR, Payback and Profitability Index
Should PQL move forward with the proposed New system? Why or why not?