Question Conch Republic Electronics is a midsized electronics manufacturer located in Key West, FL. The company president is Shelly Couts, who inherited the company. The company originally repaired radios and other household appliances when it was first founded over 70 years ago. Over the years, the company has expanded, and it is now a reputable manufacturer of various specialty electronic items. Jay McCanless, a recent MBA graduate has been hired by the company in its finance department. One of the major revenue-producing items manufactured by Conch Republic is a Personal Digital Assistant. Conch Republic currently has one PDA model on the market and sales have been excellent. The PDA 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 items, technology changes rapidly, and the current PDA has limited features in comparison to newer models. Conch Republic spent $750K to develop a prototype for a new PDA that has all the features of the existing one, but adds new features such as cell phone capability. The company has spent a further $200,00 for a marketing study to determine the expected sales figures for the new PDA. Conch Republic can manufacture the new PDA for $215 each in variable costs. Fixed costs for the operations are estimated to run $6.1M per year. The estimated sales volume is 155,000, 165,000, 125,000, 95,000 and 75,000 per year for the next five years respectively. The unit price of the new PDA will be $520. The necessary equipment can be purchased for $40.5M and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $6.1M.

As previously stated, Conch Republic currently manufactures a smart phone. Production of the existing model is expected to be terminated in two years. If Conch republic does not introduce the new smart phone, sales will be 95,000 units ad 65,000 units for the next two years, respectively. The price of the existing smart phone is $380 per unit. With variable costs of $145 each and fixed costs of $4.3 million per year. If Conch Republic does introduce the new smart phone, sales of the existing smart phone will fall by 30,000 units per year and the price of the existing units will have to be lowered to $210 each. Net working capital for the smart phones will be 20% of sales and will occur with the timing of the cash flows for the year; for example, there is no initial outlay for NWC, but changes in NWC will first occur in year 1 with the first year's sales. Conch Republic has a 35% corporate tax rate and required return of 12%.

Shelley has asked Jay to prepare report that answers the following questions.

1. What is the payback period of the project?

2. What is the profitability index of the project?

3. What is the IRR of the project?

4. What is the NPV of the project?