Baxil Electronics—A Case Study Baxil Electronics is a midsized electronics manufacturer located in Japan. The company president is Shexana, who inherited the company. When it was founded over 60years 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. Jay, a recent MBA graduate, has been hired by the company’s finance department. One of the major revenue-producing items manufactured by Baxilis a personal digital assistant (PDA). Baxil 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 pre programmed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current PDA has limited features in comparison with newer models. Baxil spent $750,000 to develop a prototype for a new PDA that has all the features of the existing PDA but adds new features such as cell phone capability. The company has spent a further $200,000 for a marketing study to determine the expected sales figures for the new PDA. Baxil can manufacture the new PDA for $155 each in variable costs. Fixed costs for the operation are estimated to run $4.7 million per year. The estimated sales volume is 74,000, 95,000, 125,000, 105,000, and 80,000 per each year for the next five years, respectively. The unit price of the new PDA will be $360. The necessary equipment can be purchased for $21.5 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $4.1 million. As previously stated, Baxil currently manufactures a PDA. Production of the existing model is expected to be terminated in two years. If Baxil does not introduce the new PDA, sales will be 80,000 units and 60,000 units for the next two years, respectively. The price of the existing PDA is $290 per unit, with variable costs
