CHAPTER CASE Conch Republic Electronics Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida....

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Finance

CHAPTER CASE
Conch Republic Electronics
Conch Republic Electronics is a midsized electronicsmanufacturer located in Key West, Florida. The company president isShelly Couts, who inherited the company. The company originallyrepaired radios and other household appliances when it was foundedmore than 70 years ago. Over the years, the company has expanded,and it is now a reputable manufacturer of various specialtyelectronic items. Jay McCanless, a recent MBA graduate, has beenhired by the company in its finance department.
One of the major revenue-producing items manufactured by ConchRepublic is a smartphone. Conch Republic currently has onesmartphone model on the market and sales have been excellent. Thesmartphone is a unique item in that it comes in a variety oftropical colors and is preprogrammed to play Jimmy Buffett music.However, as with any electronic item, technology changes rapidly,and the current smartphone has limited features in comparison withnewer models. Conch Republic spent $750,000 to develop a prototypefor a new smartphone that has all the features of the existing onebut adds new features such as wifi tethering. The company has spenta further $200,000 for a marketing study to determine the expectedsales figures for the new smartphone.
Conch Republic can manufacture the new smartphone for $205 eachin variable costs. Fixed costs for the operation are estimated torun $5.1 million per year. The estimated sales volume is 64,000,106,000, 87,000, 78,000, and 54,000 per year for the next fiveyears, respectively. The unit price of the new smartphone will be$485. The necessary equipment can be purchased for $34.5 millionand will be depreciated on a seven-year MACRS schedule. It isbelieved the value of the equipment in five years will be $5.5million.
Net working capital for the smartphones will be 20 percent ofsales and will occur with the timing of the cash flows for the year(i.e., there is no initial outlay for NWC). Changes in NWC willthus first occur in Year 1 with the first year's sales. ConchRepublic has a 35 percent corporate tax rate and a required returnof 12 percent.
Shelly has asked Jay to prepare a report that answers thefollowing questions:
QUESTIONS
What is the payback period of the project?
What is the profitability index of the project?
What is the IRR of the project?
What is the NPV of the project?
*****PLEASE SHOW YOUR WORK

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CHAPTER CASEConch Republic ElectronicsConch Republic Electronics is a midsized electronicsmanufacturer located in Key West, Florida. The company president isShelly Couts, who inherited the company. The company originallyrepaired radios and other household appliances when it was foundedmore than 70 years ago. Over the years, the company has expanded,and it is now a reputable manufacturer of various specialtyelectronic items. Jay McCanless, a recent MBA graduate, has beenhired by the company in its finance department.One of the major revenue-producing items manufactured by ConchRepublic is a smartphone. Conch Republic currently has onesmartphone model on the market and sales have been excellent. Thesmartphone is a unique item in that it comes in a variety oftropical colors and is preprogrammed to play Jimmy Buffett music.However, as with any electronic item, technology changes rapidly,and the current smartphone has limited features in comparison withnewer models. Conch Republic spent $750,000 to develop a prototypefor a new smartphone that has all the features of the existing onebut adds new features such as wifi tethering. The company has spenta further $200,000 for a marketing study to determine the expectedsales figures for the new smartphone.Conch Republic can manufacture the new smartphone for $205 eachin variable costs. Fixed costs for the operation are estimated torun $5.1 million per year. The estimated sales volume is 64,000,106,000, 87,000, 78,000, and 54,000 per year for the next fiveyears, respectively. The unit price of the new smartphone will be$485. The necessary equipment can be purchased for $34.5 millionand will be depreciated on a seven-year MACRS schedule. It isbelieved the value of the equipment in five years will be $5.5million.Net working capital for the smartphones will be 20 percent ofsales and will occur with the timing of the cash flows for the year(i.e., there is no initial outlay for NWC). Changes in NWC willthus first occur in Year 1 with the first year's sales. ConchRepublic has a 35 percent corporate tax rate and a required returnof 12 percent.Shelly has asked Jay to prepare a report that answers thefollowing questions:QUESTIONSWhat is the payback period of the project?What is the profitability index of the project?What is the IRR of the project?What is the NPV of the project?*****PLEASE SHOW YOUR WORK