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please help in finance Alpha Republic Electronics is a midsized electronics manufacturer located in Dubai. The company President is Mohammed Yusuf, who inherited the company.
please help in finance
Alpha Republic Electronics is a midsized electronics manufacturer located in Dubai. The company President is Mohammed Yusuf, who inherited the company. The company originally repaired radios and other household appliances when it was founded more than 70 years ago. Over the years, the company has expanded, and it is now a reputable manufacture of various specialty electronic items. Haya Abdulla is a recent MBA graduate, has been hired by the company in its finance department. One of the major revenue producing items manufactured by Alpha Republic is a smartphone. Alpha Republic 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 colors and is preprogrammed to play Khalid Al- Shiakh music. However, as with any electronic item, technology changes rapidly, and the current smartphone has limited features in comparison with newer models. Alpha Republic spent BD 2.2million to develop a prototype for a new smartphone that has all the features of the existing one but adds new features. The company has spent a further BD350,000 for a marketing study to determine the expected sales figure for the new smartphone. Alpha Republic can manufacture the new smartphone for BD150 each in variable costs. Fixed costs for the operation are estimated to run BD7.3 million per year. The estimated sales volumes are 64,000, 106,000, 87,000, 78,000 and 54,000 per year for each of the next five years, respectively. The unit price of the new smartphone will be BD515. The necessary equipment can be purchased for BD38.5 million and will depreciate on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be BD7.8 million. Net working capital for the smartphones 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 thus will occur first in Year 1 with the first year's sales. Alpha Republic has a 22 percent corporate tax rate and required return of 12 percent. Haya is required to answer the following questions: 1. What is the IRR of the project? 2. What is the NPV of the project? 3. How sensitive is the NPV to changes in the price of the new smartphone? 4. How sensitive is the NPV to changes in the quantity sold? 5. Should Alpha Republic produce the new smartphone? 6. Suppose Alpha Republic loses sales on other models because of the introduction of the new model. How would this affect your analysisStep by Step Solution
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