Please answer with Excel Formulas or answer explanation: 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 smart phone. Conch Republic currently has one smart phone model on the market and sales have been excellent. The smart phone 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 smart phone has limited features in comparison with newer models. Conch Republic spent $750,000 to develop a prototype for a new smart phone that has all the features of the existing one but adds new features such as wifi tethering. The company has spent a further $200,000 for a marketing study to determine the expected sales figures for the new smart phone. Conch Republic can manufacture the new smart phone for $205 each in variable costs. Fixed costs for the operation are estimated to run $5.1 million per year. The estimated sales volume is 64,000, 106,000, 87,000, 78,000, and 54,000 per year for the next five years, respectively. The unit price of the new smart phone will be $485. The necessary equipment can be purchased for $34.5 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $5.5 million. Net working capital for the smart phones 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 will thus first occur in Year 1 with the first years sales. Conch Republic has a 35 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. 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? 5. How sensitive is the NPV to changes in the price of the new smart phone? (what is PI, IRR, NPV & what is change in NPV?) 6. How sensitive is the NPV to changes in the quantity sold? (what is PI, IRR, NPV & what is change in NPV?) 7. Should Conch Republic produce the new smart phone? 8. Suppose Conch Republic loses sales on other models because of the introduction of the new model. How would this affect your analysis?

Please complete this worksheet showing all calculations for this case. Submit this to your professor for grading. Complete all colored spaces.

CONCH REPUBLIC ELECTRONICS

Assumptions, provided in the text

Equipment

Salvage value

R&D

Marketing study

Year 1

Year 2

Year 3

Year 4

Year 5

Sales(units)

$ 64,000.00

$ 106,000.00

$ 87,000.00

$ 78,000.00

$ 54,000.00

Depreciation rate

Price

VC

per unit

FC

Tax rate

NWC percentage

Required return

Sensivity analysis

New price

15% reduction

Quantity change

NOTE: Change in units per year

15% reduction

(note: this is year one not the aggregate)

Initial Cost Outlay

1

2

3

4

5

Year 1

Year 2

Year 3

Year 4

Year 5

Sales

Variable Costs

Fixed costs

Depreciation

EBT

Tax

NI (net income)

Depreciation

OCF (operating cash flow)

NWC

Beginning Balance of NWC

Changes in Net Working Capital

Net Working Capital Cash Flow

Net CF

Enter your calculations for book value of equipment and determining the cash flow on the sale of the equipment

Enter in the cash flow from the equipment in 5 years

Cash flow on Project

Discounted Cash Flow

1

Payback

2

Profitability Index

3

Internal Rate of Return

4

Net Present Value

5

Price Sensitivity

Profitability Index

Internal Rate of Return

Net Present Value

Change in NPV

6

Quantity Sensitivity

Profitability Index

Internal Rate of Return

Net Present Value

$ -

Change in NPV

$ -

7

Should Conch produce the New PDA?

8

Suppose Conch Loses other sales?