PacLabs Inc. currently sells three models of smart phones to the US market. Management is planning to add a new smart phone model to their product line. The project will cost $2,800,000 in Buildings and Equipment, which will be depreciated using MACRS with a class life of 20 years. This project has a 5-year life. At the end of the 5 years, management anticipates that the buildings and equipment will be sold for $1,200,000.

The marketing department estimates that the firm will be able to sell 11,500 units of the new smart phone at an average price of $199 per unit during the first year. Unit demand is expected to grow at a rate of 8% annually thereafter. Variable operating expenses are expected to average 58% of gross sales, and fixed costs (not including depreciation) will be $380,000 per year. The company's marginal tax rate is 20% and its WACC is 12%.

Part A. Evaluate the project (find the NPV, IRR, MIRR, Payback Period and Discounted Payback Period).

1. Do you recommend the project to PacLabs given your findings? Why?