Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelly Couts, who inherited the company. The company

image text in transcribed Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelly Couts, who inherited the company. The company originally repaired radios and other household appliances when it was founded over 70 years ago. Over the years, the company has expanded, and it is now a reputable manufacturer of various specialty electronic items. Jay McCanless, a recent MBA graduate, had been hired by the company in its finance department. One of the major revenue-producing items manufactured by Conch Republic is a smartphone. Conch Republic currently has one smartphone model on the market and sales have been excellent. The smartphone is a unique item in that it comes in a variety of tropical 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 with newer models. Conch Republic spent $1.5 million to develop a prototype for a new smartphone that has all the features of the existing one but adds new features such as wifi tethering. The company has spent a further $250,000 for a marketing study to determine the expected sales figures for the new smartphone. Conch Republic can manufacture the new smartphone for $215 each in variable costs. Fixed costs for the operation are estimated to run $5.4 million per year. The estimated sales volume is 67,000,108,000,93,000,86,000, and 55,000 per year for the next five years, respectively. The unit price of the new smartphone will be $525. The necessary equipment can be purchased for $41.5 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $5.9 million. Net working capital for the smartphones will be 20 percent of sales 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 thus first occur in Year 1 with the first year's sales. Conch Republic has a 22 percent corporate tax rate and a required rate of return of 12 percent. Shelly has asked Jay to prepare a report that answers the following questions: Questions 1. Should Conch Republic produce the new smartphone? 2. Suppose Conch Republic loses sales on other models because of the introduction of the new model. How would this affect your analysis

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Sustainable Finance And Impact Investing

Authors: Alan S. Gutterman

1st Edition

1637423764, 978-1637423769

More Books

Students also viewed these Finance questions

Question

4. Devise an interview strategy from the interviewers point of view

Answered: 1 week ago