CONCH REPUBLIC ELECTRONICS, PART 1 Conch Repablic Electronics is a midsized electronies manufecturer located in Key West, Florida. The eompany president is Shelley Coots, who inheritod the company. When it was founded over 70 years ago, the compeny origienally repuired radios and other household applinnces. Over the years, the compuny expanded into manufacturing and is now a ropatable manaflacturer of various electronic items. Jay MoCanless, a recent MBA graduate, has been hired by the company's finance department. One of the major revenue-producing items manuftetured 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 coloss and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, tect hology changes rapidly, and the current smartphone has limited feahures in comparison with newer models. Conch Republic spent $750,000 to develop a prototype for a new smartphone that has all the features of the existing smartpbone bat adds new features such as WiFi tethering. The company has spent a further 5200,000 for a marketing study to determine the expected sales figures for the new smartphone. Conch Republic can manufacture the new smartpbones for 5220 each in variable costs. Fixed costs for the opention 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 be purthased for $43.5 million and will be depreciated oe a seven-year MACRS schedale. It is believed the value of the equipment in five years will be 56.5 million. As previously stated, Conch Republic currently manufictures a imartphone. Production of the existing model is expected to be terninated in two yeans. If Conch Republic does not introduce the new smarppone, sales will be 95,000 units and 65,000 units for the next tub years, respectively. The price of the existing smartphone is $385 per unit, with variable costs of $145 each and fixed costs of 4.3 million per year. If Conch Republic does introduce the new smartphone, sales of the existing smartphone will fall by 30,000 units per year, and the price of the existing units will have to be lowerod to $215 each. Net working capital for the smartphones will be 20 pereent of sales and will oceur with the timing of the cash flows for the year, for example, there is no initial outlay for NWC, but changes in NWC will first occur in Year 1 with the fint year's sales. Conch Republic has a 21 percent corporate tax rate and a required return of 12 pereent Shelley has asked Jay to prepare a report that answers the following questions. QUESTIONS 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? Conch Republic Electronics, Part 1 Input Area: Sales of old phone Lost sales PriceVCFCPriceofoldphone$$$$ Revised price of old phone VC of old phone Tax rate NWC percentage 0% Required return 0% Output Area: Old phone price reduction Sales New Lost sales Lost rev. Net sales VC New Lost sales \begin{tabular}{crrrrr} $0 & $0 & $0 & $0 & $0 \\ 0 & 0 & & & \\ \hline$0 & $0 & $0 & $0 & $0 \end{tabular} NWC Beg End NWC CF 1 INet CF $0 $0 $0 Salvago BV of equipment Taxes Salvage CF Net CF Payback period \begin{tabular}{l|} PaybackperiodP1IRRNPV \\ \hline \end{tabular}