Chapter 10 of "Fundamentals of Corporate Finance, 11th Edition", question 4 from the minicase: What is the NPV of the project?

organizes trade events that help potential export tional trade fairs, which are held regularly in major e export opportunities. The department organizes exhibitions at internatic FCX initially got into meet with qualified 17,900 and 10.400 aditional units to com four years, respectively, at a price of $210. This prie, othe cent, and the required return is 10 percent. Additie PART Capital Bucseting 348 Chapter 10 Making Capital Investment Decisions nt. Additionally, the pres L. The smart phone is a unique item in that not introduce the new smart phone. 00. What bid price ical colors and is preprogrammed t music. However, as with any elec only if it has an NPV of $100.000 w in a variety of tropical colors new smart phone, sales will be 95,000 units and 65,000 units for the next two years, Te of the existing smart phone is play technology changes rapidly, and the current smart costs of $145 each and fixed costs of $4.3 million per year 380 per unit, with variable uronic ns limited features icn with newer models Ir Conch Republic does introduce the new smart phone, sales The old one cost us S1.300,000; theeplaci odprec60,000 ted features in comparison with newer models. If Condh ic spent $750,000 to devel one that has all the teatures of the existing smart and the price of the existing units will have to be lowered to new features such as WiFi tetheri t a further $200,000 for a marketing study to 20 percent of sales and will occur with the timing of the cash expected sales figures for the new smart phone. flows for the year, for example, there is no initial outlay for t Decisions LO2] Suppose we are thinking a you set for the contract newg per year. It wi op a prototype for a of the existing smart phone will fall by 30,000 units per year Conch Repub n Hows and ter new machine will be depreciated straght- ng. The com $210 each. Net working capital for the smart phones will be new smart phone. flows for the year, for example S1,560,000. The It will probably be worth about $300.00 after five veto zero, e win has s The old computer is being depreciated at a rate of s260 h Republic can manufacture the new smart phones for NWC, but changes in NWC will first occur in Year I with the Concih in variable costs. Fixed costs for the operation are first year's sales. Conch Republic has a 35 percent corporate written off in three years. If we don't replace it now per year 20,000: in two years, it will place it in two years. We can sell be worth S120,000. The new machine will save us $290.000 costs. The tax rate is 38 percent, and the discount rate is a. Suppose we recognize that if we don't replace the com years. We can sell it now for $420,000 S6.1 million per year. The estimated sales tax rate and a required return of 12 percent per imateu 155,000. 165,000, 125,000, 95,000, and 75,000 per Shelley has asked Jay to prepare a report that answers the the next five years, respectively. The unit price of the replacing it in two years. Should we replace now or shoul not selling it) or to invest in the new one. Notice that the out worrying about what's going to happen in two years. w following questions. ne will be $520. The necessary equipment can be purcha MACRS schedule. It is believed the value of the ly stated, Conch Republic currently manufac- inated in two years. If Conch Republic does hased for $40.5 million and will be de on a QUESTIONS 1. What is the payback period of the project? 2. What is the profitability index of the project? 4. What is the NPV of the project? at the two investments ha we effectively have here is a decision either to "invest" we effectively have here is a decision either to"invest" in the wait? in five years will be S6.1 million tures a smart phone. Productic termi ne. Production of the existing model is ex 3. What is the IRR of the project? ures a saerterninated in two years, If Conch Republic does 4. What is the NPV of the project? b. Suppose we consider only whether we should replace the cash flows? Should we replace it or not? Hint: Cons firm's aftertax cash lows if we do the replacement. not? Hint: Consider the net chan ider the net ch EXCEL MASTER IT! PROBLEM For this Master It assignment, refer to the Conch Republic Electronics case Chapter 10. For your convenience, the price and variable cost. For this project, answer the following questions: Ve suc a. What is the profitability index of the project? b. What is the IRR of the project? c. What is the NPV of the project? d. At what pric Conch Republic Electronics case at the end we have entered the relevant values in the c e would Conch Republic Electronics be indifferent to accepting the project? e. At what level of variable costs per unit would Conch Republic Electronic indifferent to accepting the project? MINICASE Conch Republic Electronics, Part 1 Conch Republic Electronics is a midsized electronics manu- manufacturer of various electronic items. Jay McCanless,a r facturer located in Key West, Florida. The company president cent MBA graduate, has been hired by the company's finane is Shelley Couts, who inherited the company. When it was department. founded over 70 years ago, the company originally repaired One of the major revenue-producing items manufactured radios and other household appliances. Over the years, the by Conch Republic is a smart phone. Conch Republic ar company expanded into manufacturing and is now a reputable rently has one smart phone model on the market, and sib