$4,500,000 $750,000 Pancho Republic Electronics - Capital Budgeting Spreadsheet Equipment $20,500,000 Pretax salvage value R&D Marketing study $200,000 Year Year Year? Year 4 Sales (units) 84000 99000 130000 110000 Year 5 90000 Sales of old PDA 80000 60000 Lost sales 15000 15000 Depreciation rate 14.29% 24.49% 17.49% 12.49% 8.93% Price $380 VC $165 FC $4,900,000 Price of old PDA Price reduction of old PDA $310 $55 VC of old PDA $120 Tax rate 21% NWC percentage 20% Required return 12% Sales Year Year? Year? Year 4 Year 5 New Sales Lost sales Lost revenue Net sales VC New Lost sales Total VC Sales VC Fixed costs Dep EBT Tax NI +Dep OCF NWC Beg End NWC CF Net CF Salvage BV of equipment Taxes Salvage CF Time 0 Cash flow 1 2 5 Show all dormulas and calculations (20 Pts.] Profitability index (20 Pts.) IRR (20 Pts.) NPV Pancho Republic Electronics - Capital Budgeting Pancho Republic Electronics is a midsized electronics manufacturer founded over 70 years ago that originally repaired radios, but it expanded and now is a reputed manufactures of various electronic items including smart phones, and is located in Key West, Florida. The company is presided by Shelley Couts, who inherited the company. you were hired as a recent MBA in the finance Pancho Republic can manufacture a new smart phone for $165 each in variable costs. Fixed costs are expected to run $4.9 million per year. The estimated sales are 84,000, 99,000, 130,000, 110,000, and 90,000 per year for the next 5 years, respectively. The price per unit will be $380. The necessary equipment can be purchased at $20.5 million and will be depreciated on a secevn-year MACRS schedule (14.29%, 24.49%, 17.49%, 12.49%, 8.93%, 8.92%, 8.93%, and 4.46%). It is believed that the market value of the equipment in 5 years will be $4.5 million. Net working capital for the new smart phone project will be 20% of each year sales with the timing of the cash flows's sales (i.e., at the end of each year). No initial working capital is incurred. Pancho Republic already manufactures a smart phone model, which it intends to stop manufacturing in two years. If it does not stop, it will sell 80,000 and 60,000 units at $310 each, respectively over the next two years. The variable cost per unit of the existing model is $120 and fixed costs are $1,800,000 per year. With the introduction of the new smart phone, sales of the existing model will drop by 15,000 units per year and the unit price will have to be lowered to $255. Variable costs and The corporate tax rate for Pancho Electronics is 21 percent, and its required rate of return is 12%. Shelley has asked you to prepare a report that answers the following questions. a. (20 Points) What is the profitability index of the project? b. C. (20 Points) What is the IRR of the project? (20 Points) What is the NPV of the project?