MINICASE Conch Republic Electronics, Part 1 Conch Republic Electronics is a midsized electronics manufac- turer located in Key West, Florida. Th for $21.5 million and will be depreciated ona e company president is MACRS schedule. It is believed the value of the year Shelley Couts, who inherited the company. When it was five founded over 70 years ago, the company originally repaired years will be $4.1 million As previously stated, Conch Republic currently manufac radios and other household appliances. Over the years, the tures a PDA. Production of the existing model is expected to b company expanded into manufacturing and is manufacturer of various electronic it terminated in two years. If Conch Republic the new PDA, sales will be 80,000 units and 60,000 un a reputable does not introduce ems. Jay McCanle recent MBA graduate, has been hired by the company's finance the next two years, respectively. The price of the existing PDA department is $290 per unit, with variable costs of $120 each and fixed One of the major revenue-producing items manufactured costs of $1,800,000 per year. If Conch Republic does introduce by Conch Republic Republic currently has one PDA model on the market, and units per year, and the price of the existing units will have sales have been excellent. The PDA is a unique item in that it lowered to $255 each. Net working capital for the PDAs willbe comes in a variety of tropical colors and is preprogrammed to 20 percent of sales and will occur with the timing of the cash play Jimmy Buffett music. However, as with any electronic flows for the item, technology changes rapidly, and the current PDA has lim- NWC, but changes in NWC will first occur in year I with the ited features in comparison with newer models. Conch Repub- first year's sales. Conch Republic has a 35 lic spent $750,000 to develop a prototype for a new PDA that tax rate and a 12 percent required return has all the features of the existing PDA but adds new features such as cell phone capability. The company has spent a further following questio S200,000 for a marketing study to determine the expected sales figures for the new PDA is a personal digital assistant (PDA). Conch the new PDA ar; for example, there is no initia Shelly has asked Jay to prepare a report that answers the Conch Republic can manufacture the new PDA for $155 QUESTIONS h in variable costs. Fixed costs for the operation are esti-1. What is the payback period of the project? ar. The estimated sales volume 2. What is the profitability index of the project? mated to run $4.7 million per sales volume is 74,000, 95,000, 125.000, 105,000, and 80,000 per each year or the next five years, respectively. The unit price of the new What is the IRR of the project? PDA will be $360. The necessary equipment can be purchased 4. What is the NPV of the project
