I need help with part 2. I have attached part 1 finished and the actual part 2 problem question.

MINICASE CONCH REPUBLIC ELECTRONICS, PART 2 Shelley Couts, the owner of Conch Republic Electronics, has received the capital budgeting analysis from Jay McCanless for the new smartphone the company is considering. Shelley is pleased with the results, but she still has concerns about the new smartphone. Conch Republic has used a small market research firm for the past 20 years, but recently the founder of that firm has retired. Because of this, Shelley is not convinced the sales projections presented by the market research firm are entirely accurate. Additionally, because of rapid changes in technology, she is concerned that a competitor may enter the market. This would likely force Conch Republic to lower the sales price of its new smartphone. For these reasons, she has asked Jay to analyze how changes in the price of the new smartphone and changes in the quantity sold will affect the NPV of the project. Shelley has asked Jay to prepare a memo answering the following questions. Q U EST | 0 NS 1. How sensitive is the NPV to changes in the price of the new smartphone? 2. How sensitive is the NPV to changes in the quantity sold of the new smartphone? Solution Minicase 3 Investment analysis of Conch Republic Electronics, part 1 (Ross et al, 2019:349) NWC Beg $0 $12,065,000 $14,155,000 $13,375,000 $10,165,000 End 12,065,000 14,155,000 13,375,000 10,165,000 This is an in-depth capital budgeting problem. The initial cash outlay at Time 0 is the cost of the new equipment, $43,500,000. The sales each year are a combination of the sales of the new smart phone, the lost sales each year, and NWC CF $12,065,000 090,000 780,000 $3,210,000 $10,165,000 the lost revenue. In this case, the lost sales are 30,000 units of the old smart phone each year for two years at a price of $385 each. The company will also be forced to reduce the price of the old smart phone on the units they will still Net CF $8,338,642 $25,762,912 $28,427,962 $22,935,712 $24,588,506 sell for the next two years. So, the total change in sales is: BV of equipment = $43,500,000 - 6,216,150 - 10,653,150 - 7,608,150 - 5,433,150 - 3,884,550 Sales = New sales - Lost sales - Lost revenue BV of equipment = $9,704,850 Year 1 = (155,000 x $535) - (30,000 x $385) - [(95,000 - 30,000) x ($385 - 215)] = $60,325,000 Taxes on sale of equipment = (BV - MV)I Year 2 = (165,000 x $535) - (30,000 x $385) - [(65,000 - 30,000) x ($385 - 215)] = $70,775,000 Taxes on sale of equipment = ($9,704,850 - 6 500 000)( 21) Taxes on sale of equipment = $673,019 Sales Year 1 Year 2 Year 3 Year 4 Year 5 New $82,925,000 $88,275,000 $66,875,000 $50,825,000 $40,125,000 CF on sale of equipment = $6,500,000 + 673,019 CF on sale of equipment = $7,173,019 Lost sales -11,550,000 -11,550,000 Lost revenue -11,050,000 -5,950,000 So, the cash flows of the project are: Net sales $60,325,000 $70,775,000 $66,875,000 $50,825,000 $40,125,000 Time Cash Flow VC 0 -$43,500,000 New $34,100,000 $36,300,000 $27,500,000 $20,900,000 $16,500,000 8,338,642 Lost sales 4,350,000 4,350,000 25,762,912 $29,750,000 $31,950,000 $27,500,000 $20,900,000 $16,500,000 28,427,962 UAW N 22,935,712 31,761,524 Sales $60,325,000 $70,775,000 $66,875,000 $50,825,000 $40,125,000 1. The payback period is: VC 29,750,000 31,950,000 27,500,000 20,900,000 16,500,000 Fixed costs 6,400,000 6,400,000 6,400,000 6,400,000 6,400,000 Payback period = 2 + ($9,398,447/$28,427,962) Payback period = 2.331 years Depreciation 6,216, 150 10,653,150 7,608,150 5,433,150 3,884,550 EBT $17,958,850 $21,771,850 $25,366,850 $18,091,850 $13,340,450 Tax 3,771,359 4,572,089 5,327,039 3,799,289 2,801,495 3. The project IRR is: NI $14,187,492 $17,199,762 $20,039,812 $14,292,562 $10,538,956 $43,500,000 = $8,338,6424(1 + IRR) + $25,762,912/(1 + IRR)2 + $28,427,962/(1 + IRR)3 + Depreciation 6,216,150 10,653,150 7,608,150 5,433,150 3,884,550 + $22,935,7124(1 + IRR)4 + $31,761,524/(1 + IRR)S OCF $20,403,642 $27,852,912 $27,647,962 $19,725,712 $14,423,506 IRR = 37.51% 4. The project NPV is: NPV =-$43,500,000 + $8,338,642/1.12 + $25,762,912/1.122 + $28,427,962/1.123 + $22,935,712/1.124 + $31,761,524/1.125 NPV = $37,316,113.42