Charlotte is the CFO of a company. They are considering the purchase of a new software. The software will cost $600k and will be depreciated straight-line over 5 years (to 0). Charlotte does not think the software will be viable after 4 years, because the developer will no longer support the software. She thinks she will need to pay a programmer $20k at the end of year 4 to get rid of the software at that time. The software will reduce overhead expense by $10k per year, it will reduce labor expenses from programming by $100k per year, and it will help reduce inventory by $300k. The company has a debt/equity ratio of 0.2 which they plan to maintain after adoption of the new software. Equity beta is 1.2. Charlotte plans to pay the software out of cash raised from a bank loan with 8% interest rate (its marginal pre-tax cost of debt). She has identified a comparable pure play company that is unlevered and has an equity beta of 1.5. Assume risk free rate of 5%, market risk premium of 6%, and marginal tax rate of 30%.

1. What are the cash flows for the project for each year?
2. What discount rate should the firm use for the project?
3. Should the company accept the project? Why or why not?