onch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president...

80.2K

Verified Solution

Question

Finance

onch Republic Electronics is a midsized electronics manufacturerlocated in Key West, Florida. The company president is ShellyCouts, who inherited the company. The company originally repairedradios and other household appliances when it was founded more than70 years ago. Over the years, the company has expanded, and it isnow a reputable manufacturer of various specialty electronic items.Jay McCanless, a recent MBA graduate, has been hired by the companyin 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:
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?
How sensitive is the NPV to changes in the price of the newsmartphone?
How sensitive is the NPV to changes in the quantity sold?
Should Conch Republic produce the new smartphone?
Suppose Conch Republic loses sales on other models because ofthe introduction of the new model. How would this affect youranalysis?
PLEASE ANSWER ALL QUESTIONS USING EXCEL. THANKYOU!

Answer & Explanation Solved by verified expert

3.8 Ratings (337 Votes)

CONCH REPUBLIC ELECTRONICS 0 1 2 3 4 5 Sales in units of new smart phone 64000 106000 87000 78000 54000 Sales revenue 485 31040000 51410000 42195000 37830000 26190000 Variable cost 205 13120000 21730000 17835000 15990000 11070000 Fixed costs other than depreciation 5010000 5010000 5010000 5010000 5010000 Depreciation 7 Year MACRS 1429 2449 1749 1249 893 Depreciation expense 4930050 8449050 6034050 4309050 3080850 26803050 EBIT 7979950 16220950 13315950 12520950 7029150 Tax at 35 2792983 5677333 4660583 4382333 2460203 NOPAT 5186968 10543618 8655368 8138618 4568948 Add Depreciation 4930050 8449050 6034050 4309050 3080850 OCF 10117018 18992668 14689418 12447668 7649798 Capital expenditure 34500000 Change in NWC 6208000 4074000 1843000 873000 2328000 Release of NWC 5238000 See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

onch Republic Electronics is a midsized electronics manufacturerlocated in Key West, Florida. The company president is ShellyCouts, who inherited the company. The company originally repairedradios and other household appliances when it was founded more than70 years ago. Over the years, the company has expanded, and it isnow a reputable manufacturer of various specialty electronic items.Jay McCanless, a recent MBA graduate, has been hired by the companyin 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: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?How sensitive is the NPV to changes in the price of the newsmartphone?How sensitive is the NPV to changes in the quantity sold?Should Conch Republic produce the new smartphone?Suppose Conch Republic loses sales on other models because ofthe introduction of the new model. How would this affect youranalysis?PLEASE ANSWER ALL QUESTIONS USING EXCEL. THANKYOU!