Coral Bay Electronics
	Input Area:
	Equipment		$ 8,500,000
	Salvage value		$ 2,000,000
	R&D		$ 900,000
	Marketing study		$ 280,000
			Year 1	Year 2	Year 3	Year 4	Year 5
	New tracker sales(units)		75,000	95,000	100,000	115,000	70,000
	Depreciation rate		14.29%	24.49%	17.49%	12.49%	11.52%
	Sales of old tracker		70,000	50,000
	Lost sales in old tracker (units)		28,000	38,000
	Price of new tracker		$ 220	220	220	180	180
	Variable cost of new tracker		$ 110
	Fixed cost of new tracker		$ 3,500,000
	Price of old tracker		$ 180
	Price reduction of old tracker		$ 120
	Variable cost of old tracker		$ 90
	Tax rate		20%
	Net working capital: % of next year net sales
	Required return		16%
	Output Area:
	Sales	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
	Sales of new tracker		$16,500,000
	Lost sales due to new tracker
	Lost rev. due to new tracker
	Net sales of new tracker
	Variable Cost (VC)
	VC of new tracker
	VC saving-Due to existing sales loss
	Net VC of new tracker
	Net Sales
	Net variable costs
	Fixed costs
	Depreciation
	Operating income before taxes (EBIT)
	Taxes (20%)
	Net operating profit after taxes (NOPAT)
	+Depreciation
	Operating cash flows
	Net Working Capital Requirement (NWC)
	NWC Cash Flow
	After-tax Salvage Value (year 5 only)						Year 5
	Salvage value
	Book value
	Gain or Loss
	After-tax salvage cash flow
	Net Cash Flow (Net CF)	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
	Cumulative Net CF
	Payback period
	PI
	IRR
	MIRR
	NPV
Your final recommendation for this project:

FIN 5213 Financial Management

Coral Bay Electronics

Coral Bay Electronics is a mid-sized electronics manufacturer based in St. Louis, Missouri. The company president is Shelley Couts, who inherited the business. When it was founded more than 70 years ago, it mainly repaired radios and other household appliances. Over time, the company expanded into manufacturing and is now a well-known producer of various electronic products. Joe Hanks, a recent MBA graduate, has been hired by the company's finance department.

One of the major revenue-producing items manufactured by Coral Bay Electronics is the fitness tracker. Coral Bay Electronics currently has a fitness tracker model on the market, and sales have been excellent. However, as with any electronic item, technology changes rapidly, and the current fitness tracker has limited features compared to newer models from its competitors. Coral Bay Electronics invested $900,000 to develop a prototype for a new generation fitness tracker that incorporates all the features of the existing model, along with additional features such as an ECG monitor, GPS tracking, and heart rate monitoring. The company has spent a further $280,000 on a marketing study to determine the expected sales figures for the new fitness tracker.

Coral Bay Electronics can produce the new fitness tracker at a variable cost of $110 each. The fixed costs for the new operation are estimated at $3.5 million annually. Projected sales volumes for the next five years are 75,000, 95,000, 100,000, 115,000, and 70,000 units, respectively. The unit price for the fitness tracker will be $220 during the first three years and will decrease to $180 in years four and five. The required equipment can be purchased for $8.5 million and will be depreciated over seven years using the MACRS schedule (see table below). It is expected that the equipment will be worth $ 2 million in five years.

As previously stated, Coral Bay Electronics currently manufactures fitness trackers. Production of the existing model is expected to be terminated in two years. If Coral Bay Electronics does not introduce the new fitness tracker, sales are expected to be 70,000 and 50,000 units for the next two years, respectively. The price of the existing fitness tracker is $180 per unit, with variable costs of $ 90 each and fixed costs of $1,800,000 per year. If Coral Bay Electronics does introduce the new fitness tracker, sales of the

FIN 5213 Financial Management

existing fitness tracker are expected to fall by 28,000 units in year 1 and 38,000 in year 2, and the price of the existing units is expected to be lowered to $120 for each unit. Net working capital (NWC) for the new fitness tracker is estimated to be 25% of next year's sales. The total investment in NWC is expected to be fully recovered upon completion of

Table 1: MACRS

Shelly has asked Joe to prepare a report using EXCEL to evaluate this new project. Please use the following questions to guide you in working on the Excel spreadsheet.

the project. Coral Bay Electronics has a 20% corporate tax rate and a 16% required return.

FIN 5213 Financial Management

1. Will you include $900,000 for prototype development and $250,000 for marketing study costs in your project's cash flow analysis? Why or why not? (Answer in cells E6 and E7).

2. What are the annual net sales of new trackers? The net sales of new trackers are estimated by adjusting for the lost sales (Row 31) and revenue (Row 32) from old trackers resulting from the introduction of the new models

a. Lost sales due to the new tracker are estimated by multiplying the price of the old tracker by the number of lost units.

b. Lost revenue due to the new tracker is estimated by multiplying the expected number of old trackers sold after the introduction of the new tracker by the price reduction of the old tracker.

3. What is the annual net variable cost (VC)? The net variable cost of new trackers refers to the total variable cost of the new trackers, adjusted for the side effects on the old trackers associated with their introduction.

4. What is the depreciation costing each year?

5. What is the operating cash flow each year?

6. What is the net working capital cash flow each year?

7. What is the cash flow on equipment sales in year 5 after adjusting taxes?

8. What are this project's net cash flows (Net CF) each year, starting from year 0?

9. What is the payback period for the project?

10. What is the profitability index of the project?

11. What is the IRR of the project?

12. What is the MIRR of the project?

13. What is the NPV of the project?

14. What is your final recommendation to the CEO about this new project?

I need help with the excel formulas for this exercise