1. Value of IT Investments (40 points) The management team at Federal Express is evaluating a proposal to offer ATM-like services for customers. The customer would walk up to a FedEx ATM, provide a credit card that would be scanned, and type in the address (to and from) and other details related to the packet being shipped. The ATM would print out a form that would be attached to the packet. The packet with the attached form would then be accepted by the ATMs depository similar to the way a check is deposited at a banking ATM. It is estimated that an initial investment of $2 million would be needed to build the necessary IT infrastructure in the first phase of the ATM project. There would be no direct benefits of this phase. In about a year, a second phase investment of $10 million would be necessary to implement a network of fully functional ATMs. If the second stage investment is made, there would be an anticipated revenue of $24 million (if the economy picks up) or $7 million (if the economic downturn continues). Assume that the probability that the economy will pick up is 0.25. However, assume that at the point in time the second stage investment would need to be made, it would be clear if the economy has picked up or not.

b) Should FedEx invest in the first phase of this project? Ignore time value of money. Show your calculations. (10 points)