Boca Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Michael Phillips, who inherited the company. When it was founded over 70 years ago, the company originally repaired radios and other household appliances. Over the years, the company expanded into manufacturing and is now a reputable manufacturer of various electronic items. Recently, you have been hired by the company's finance department. One of the major revenue-producing items manufactured by Boca Electronics is a smart phone. Boca Electronics currently has one smart phone model on the market, and sales have been excellent. The smart phone is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current smart phone has limited features in comparison with newer models. Boca Electronics can manufacture the new smart phones for $400 each in variable costs. Fixed costs for the operation are estimated to run $5.50 million per year. The estimated sales volume is 75,000; 100,000; 130,000; 160,000; and 180,000 per year for the next five years, respectively. The unit price of the new smart phone will be $650. The necessary equipment can be purchased for $75 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $4.5 million. The effective tax rate for the company is 21%. The project requires $2 million initial NWC investment, and it requires NWC balance equal to 15% of sales, thereafter. The required return for the project is 12%.

What is the discounted payback period (DPBP) of the project? Based on your analysis of DPBP, should the company accept the smart phone project if the required discounted payback period is 4 years? Use if formula to construct Accept or Reject decision. 11. What is the Profitability Index (PI) of the project? Based on your analysis of PI, should the company accept the project? Use if formula to construct Accept or Reject decision. (5 point) 12. At what price would Boca Electronics be indifferent to accepting the project? Use if formula to construct Accept or Reject decision. (5 point) 13. Draw the NPV profile for the Project. (10 point)

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