SPI from Waterloo is looking at the development of a new smartphone to challenge Apple and Samsung in that market. SPI has committed an initial investment of $7.5 million for a lab and equipment on this project. They spent $500,000 on marketing research and identified that their new phone could sell 100,000 units per year at a price of $260 per unit. SPI expects the cost of production of the smartphone being $110 per unit. Once the smartphone ready for the market, SPI will spend $2.8 million per year on marketing and support for this product. It is expected that many of SPIs existing customers will upgrade to the new phone. Due to rolling out of the new phone, the sale of SPIs older version of phone will drop by 25,000 units/ year for five years. The older version currently sells for $210 per unit. The project will also require an advance in net working capital of $2.25 million upfront (Year 0) when the project starts which will be refunded to SPI at the end of the project. SPI estimate that the smartphone will have a shelf life of 5 years after which point SPI will retire the smartphone from the market. At the end of the 5th year, SPI also intends to sell the lab equipment and associated computers and software for $4 million dollars. The firm's cost of capital is 12 percent, its tax rate is 40 percent and the depreciation (or CCA) rate on the lab equipment and computers is 20% (straight line depreciation). Based on a net present value analysis, should this investment be accepted? Year 0 1 2 3 4 5