Conch Republic Electrics locates in Key West, Florida. The President is Shelley Couts, who inherited the...

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Conch Republic Electrics locates in Key West, Florida. ThePresident is Shelley Couts, who inherited the company. The companyis a reputable manufacturer of various electronic items. JayMcCanless, a recent Business graduate, has been hired by thecompany’s finance department.
One of the major revenue producing items manufactured by ConchRepublic is a Personal Digital Assistant, PDA. Conch Republiccurrently has one PDA model on the market, and sales have beenexcellent. However, as with any electronic item, technology changesrapidly, and the current PDA has limited features in comparisonwith newer models. Conch spent $750000 to develop a prototype for anew PDA that has all the features of existing PDA but adds newerfeatures which market demands. The company has spent a further$200000 for a marketing and sale promotion.
Conch republic manufactures the new PDA for $150 each invariables costs. Fixed costs for the operation are estimated to run$4.5 million per year. The estimate sale volume is 70000, 80000,100000, 85000, and 75000 per each year for the next four years,respectively. The unit price of the new PDA will be $340. Thenecessary equipment can be purchased for $16.5 million and will bedepreciated on a seven-year MACRS schedule. It is believed thevalue of the equipment in five years will be $3.5 million. Networking capital for the PDAs will be 20% of sales and will occurwith the timing of the cash flows for the year. Conch Republic hasa 35% tax rate and 12% required return.
Shelley has asked jay to prepare a report that answers thefollowing questions:
What is the IRR of the new project? (10%)
What is the NPV of the new project? (10%)
Challenge Part of Case #2
Production of the existing model is expected tobe terminated in two years. If Conch republic does not introducethe new PDA, sales will be 80000 units and 60000 units for the nexttwo years respectively. The price of the existing PDA is $ 280 perunit, with variable costs of $120 each and fixed costs of $1800000per year. If Conch Republic dose introduce the new PDA, sales ofthe existing PDA will fall by 15000 units per year, and the pricewill have to be lowered to $240 each. Consider this change ofoperation cash flows,
What is the NPV of the new project? (10%)

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3.8 Ratings (631 Votes)

CONCH REPUBLIC ELECTRICS 0 1 2 3 4 5 Sales in units of new PDA 70000 80000 100000 85000 75000 Sales revenue 340 23800000 27200000 34000000 28900000 25500000 Variable cost 150 10500000 12000000 15000000 12750000 11250000 Fixed costs other than depreciation 4500000 4500000 4500000 4500000 4500000 Depreciation 7 Year MACRS 1429 2449 1749 1249 893 Total Depreciation Book Value Depreciation expense 2357850 4040850 2885850 2060850 1473450 12818850 3681150 EBIT New PDA 6442150 6659150 11614150 9589150 8276550 Tax at 35 2254753 2330703 4064953 3356203 2896793 NOPAT 4187398 4328448 7549198 6232948 5379758 Add See Answer

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Conch Republic Electrics locates in Key West, Florida. ThePresident is Shelley Couts, who inherited the company. The companyis a reputable manufacturer of various electronic items. JayMcCanless, a recent Business graduate, has been hired by thecompany’s finance department.One of the major revenue producing items manufactured by ConchRepublic is a Personal Digital Assistant, PDA. Conch Republiccurrently has one PDA model on the market, and sales have beenexcellent. However, as with any electronic item, technology changesrapidly, and the current PDA has limited features in comparisonwith newer models. Conch spent $750000 to develop a prototype for anew PDA that has all the features of existing PDA but adds newerfeatures which market demands. The company has spent a further$200000 for a marketing and sale promotion.Conch republic manufactures the new PDA for $150 each invariables costs. Fixed costs for the operation are estimated to run$4.5 million per year. The estimate sale volume is 70000, 80000,100000, 85000, and 75000 per each year for the next four years,respectively. The unit price of the new PDA will be $340. Thenecessary equipment can be purchased for $16.5 million and will bedepreciated on a seven-year MACRS schedule. It is believed thevalue of the equipment in five years will be $3.5 million. Networking capital for the PDAs will be 20% of sales and will occurwith the timing of the cash flows for the year. Conch Republic hasa 35% tax rate and 12% required return.Shelley has asked jay to prepare a report that answers thefollowing questions:What is the IRR of the new project? (10%)What is the NPV of the new project? (10%)Challenge Part of Case #2Production of the existing model is expected tobe terminated in two years. If Conch republic does not introducethe new PDA, sales will be 80000 units and 60000 units for the nexttwo years respectively. The price of the existing PDA is $ 280 perunit, with variable costs of $120 each and fixed costs of $1800000per year. If Conch Republic dose introduce the new PDA, sales ofthe existing PDA will fall by 15000 units per year, and the pricewill have to be lowered to $240 each. Consider this change ofoperation cash flows,What is the NPV of the new project? (10%)