Task 3: Capital Budgeting Houston Electronics is a midsized electronics manufacturer located in Houston, Texas. The company president is Michael Phillips, who inherited the company. The company was founded over 70 years ago and 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. A major revenue-producing item Houston Electronics manufactured is a smartphone. Houston Electronics has one smartphone model on the market, and sales have been excellent. However, as with any electronic item, technology changes rapidly, and the current smartphone has limited features compared to newer models. Houston Electronics can manufacture the new smartphones for $420 each in variable costs. Fixed costs for the operation are estimated to run $5.50 million per year. The estimated sales volume is 80,000; 105,000; 135,000; 165,000; and 190,000 per year for the next five years, respectively. The unit price of the new smartphone will be $675. The necessary equipment to produce new smartphones can be purchased for $84 million and depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $5.5 million. The effective tax rate for the company is 21%. The project requires a $3 million initial net working capital (NWC) investment and an NWC balance equal to 12% of sales thereafter. The required return for the project is 11.5%. Mr. Phillips has asked you to MAKE a report that answers the following questions. Questions: 7. What is the project's net present value (NPV)? Based on your analysis of NPV, should the company accept the project? Use the "if" formula to construct an "Accept" or "Reject" decision. (25 points) 8. What is the project's payback period (PBP)? Based on your analysis of PBP, should the company accept the smartphone project if the required payback period is 3 years? Use the "if" formula to construct an "Accept" or "Reject" decision. (5 points) 9. What is the project's discounted payback period (DPBP)? Based on your analysis of DPBP, should the company accept the smartphone project if the required discounted payback period is 4 years? Use the "if" formula to construct an "Accept" or "Reject" decision. (5 points)

Corporate Finance Project 2 FIN 4330 Spring 2024 10. What is the project's internal rate of return (IRR)? Based on your analysis of IRR, should the company accept the project? Use the "if" formula to construct an "Accept" or "Reject" decision. (5 points) 11. What is the Profitability Index (PI) of the project? Based on your analysis of PI, should the company accept the project? Use the "if" formula to construct an "Accept" or "Reject" decision. (5 points) 12. At what price would Houston Electronics be indifferent to accepting the project? Round to two decimals. (5 points) 13. Draw the NPV profile (Graph) for the Project. (10 points) 14. Based on your answers in Questions 7-13, would you recommend accepting or rejecting the project? Why? Justify your decision in a few sentences (10 points) ive inlcuded the output and the input to follow

B5 Clipboard Font Xfx 675 A Alignment Number Styles Cells Editing Add-in B C 1 2 Units Sales 3 Equipment Cost 4 Salvage value 5 Units Price Year 1 Year 2 Year 3 E Year 4 F G H | J K Year 5 80,000 105,000 135,000 165,000 190,000 $ 84,000,000 $ 5,500,000 $ 675.00 6 Variable cost (per unit) $ 420.00 $ 5,500,000 8 Tax rate 21.00% 7 Fixed costs (per year) 9 Initial NWC investment 10 NWC (% of sales) 11 Required return 12 Required Payback Period (years) 13 Required Discounted Payback Period (years) 14 15 MACRS Schedule 16 3-year 17 5-year 18 7-year $ 3,000,000 12.00% 11.50% 3.00 4.00 Year 1 Year 2 33.33% 44.45% Year 3 14.81% Year 4 7.41% Year 5 Year 6 Year 7 Year 8 20.00% 32.00% 19.20% 11.52% 11.52% 5.76% 14.29% 24.49% 17.49% 12.49% 8.93% 8.92% 8.93% 4.46%