4. what is the NPV of the project?
ASE ch Republic Electronics, Part 1 onics manu West, Florida. The company president who inherited the company. When it was rs ago, the company originally repaired blic Electronics is a midsized electr be purchased for $43.5 million and will be depreciated ona seven-year MACRS schedule. It is believed the value of the acarer located in Key equipment in five years will be $6.5 million over 70 years As previously stated, Conch Republic currently manufac- her household appliances. Over the years nded into m anufacturing and is now a reputable tures a smartphone. Production of the existing model is ex pected to be terminated in two years. If Conch Republic does not introduce the new smartphone, sales will be 95,000 units and 65,000 units for the next two years, respectively. The price of the existing smartphone is $385 per unit, with variable costs of t of $145 each and fixed costs of $4.3 million per year. If Conch Republic does introduce the new smartphone, sales of the ex- ales have been isting smartphone will fall by 30,000 units per year, and the price of the existing units will have to be lowered to $215 each. ical colors and is preprogrammed to play Jimmy Net working capital for the smartphones will be 20 percent turer o ot MBA graduat payf various electronic items. Jay McCanless, a re by the company's finance fac e. has been hired he major revenue-producing items manufactured blic is a smartphone. Conch Republic currently model on the market, and been smartphone is a unique item in that it comes in a One ic. However, as with any electronic item, technol- of sales and will occur with the timing of the cash flows for idly, and the current smartphone has limited the year; for example, there is no initial outlay for NWC, but in comparison with newer models. Conch Republic changes in NWC will first occur in Year 1 with the first year's $750.000 to develop a prototype for a new smartphone sales. Conch Republic has a 21 percent corporate tax rate and mus has all the features of the existing smartphone but adds a required return of 12 percent that features such as WiFi tethering. The company has spent $200,000 for a marketing study to determine the ex- Shelley has asked Jay to prepare a report that answers the following questions a further pected sales figures for the new smartphone Republic can manufacture the new smartphones for QUESTIONSs s220 each in variable costs. Fixed costs for the operation are estimated to run $6.4 million per year. The estimated sales volume is 155,000, 165,000, 125,000, 95,000, and 75,000 per year for the next five years, respectively. The unit price of the new smartphone will be $535. The necessary equipment can 1. What is the payback period of the project? 2. What is the profitability index of the project? 3. What is the IRR of the project? 4. What is the NPV of the project
