  During the second long shutdown of the LHC in 2018, the ALICE Collaboration
plans to install an upgrade of the ALICE Inner Tracking System (ITS) in the
central barrel with seven layers of silicon detectors starting at 2.2 cm radial
distance from the interaction region and a material budget as low as 0.3%
radiation length per layer. A single-hit resolution of $\mathrm{4 \mu m}$ and a
readout rate capability of up to 50 kHz in Pb--Pb collisions will allow new and
unique measurements in the heavy-quark sector, i.e. charm and beauty. Using
detailed Monte Carlo simulations of pp and Pb--Pb collisions we study the
performance for heavy-flavor detection with an upgraded ITS in the following
benchmark analyses: Charm meson and baryon production, i.e. $\mathrm{D^{0}
\rightarrow K^{-}\pi^{+}}$ and $\mathrm{\Lambda_{c}^{+} \rightarrow
pK^{-}\pi^{+}}$, and beauty meson and baryon production, i.e. displaced
vertices of $\mathrm{B^{+} \rightarrow \bar{D}^{0}\pi^{+}}$ and
$\mathrm{\Lambda_{b} \rightarrow \Lambda_{c}^{+}\pi^{-}}$.
