Sivata is a midsized electronics manufacturer serving the US public safety (police, fire, EMS, and military) communications market. One of the major revenue-producing items manufactured by Siyata is a mission-critical push-to-talk. Andreidebased smartphone that looks like a radie and interoperates with traditional radio systems. Syyata has one smartphone model on the market, the SD7, and sales have been excellent. The Siyata SD7 is unique because it is locked down to a single function, allowing for radio communications over a government cellular network for public safety organizations, It is low-cost compared to traditional P25 radio equipment, which can run above $10,000 for the most expensive models. However, as with any electronic item, technology changes rapidly, and the current Siyata SD7 has limited features compared to newer models from competitor Sonim and its XPSPlus olfering. Siyata invested $750K for a new radio-interoperable smartphone with a more robust high-powered antenna for long-range communications to cellular towers. This model will be known as the Siyata SDX Finances - Siyata invested $200K in a market sales study for SDX sales. - Variable costs are \$215 per Siyata SDX. - Siyata estimates fixed costs at \$6.1M yearly. - Siyata has a 35% corporate tax rate. - Siyata's board of directors, led by Peter Goldstein, has set a required return of 12%. The estimated sales volume is as follows: - First Year 155K - Second Year: 165K - Third Year 125K - Fourth Year 95K - Fifth Year 75K Glenn Kennedy, Siyata's VP of Sales, plans for a $520 /unit introductory price for the SDX Gerald Bemstein, Siyata's CFO, plans to purchase manufacturing equipment for the SDX for $40.5M and will depreciate equipment on a seven-year MACRS schedule. Mr. Bernstein estimates a $6.1M equipment valuation after the fifth year of operation. Marc Seelenfreund, Siyata's CEO, estimates the ceasing of production of the existing model in two years. If Siyata does not introduce the SDX, sales of the SD7 will be 95K (first year) and 65K (second year) units for the next two years. Siyata SD7s have a unit price of $380. The Siyata SD7 has a variable cost of $145 each and fixed costs of $4.3M annually. if Siyata does 1 introduce the SDX, sales of the SD7 will fall by 30K ulis werking capital for the SDX will be 20% SD7s will see a unit price slide to $210 per device. Net working capital for the SDX will be 20\% of sales and will occur with the timing of the cash flows for the year. There is no initial outlay fo year's sales. Questions 1. What is the payback period (PBP) of the Siyata SDX project? a. Based on your analysis of PBP, should Siyata accept the SDX project if the required payback period is 3 years? 2. What is the profitability index of the Siyata SDX project? 3. What is the IRR of the Siyata SDX project? a. Based on your analysis of IRR, should Siyata accept the SDX project? 4. What is the NPV of the Siyata SDX project? a Based on your analysis of NPV, should Siyata accept the SDX project? 5. At what price would Siyata be indifferent to accepting the SDX project? Part II: Scenario Analysis Mr. Bemstein believes that the SDX project's unit sales, variable costs, and equipment cost projections are accurate to 20% Questions 1. What are the best case NPV, IRR, and PBP of the project? 2. What are the worst-case NPV, IRR, and PBP of the project? a. Would you still accept the project under this scenario? Part III: Sensitivity Analysis Mr. Bemstein, Kennedy, and Seelenfreund have received your capital budgeting analysis for the Siyata SDX Mr. Sellenfreund was pleased with the results but is still concerned about the SDX project. Unconvinced of the sales projection accuracy presented by an outside market research firm selected by Mr. Kennedy, Mr. Bernstein has asked you to investigate the matter further. Additionally, because of rapid technological changes, the chairman, Mr. Goldstein, was concerned that Sonim could consume a significant market share with the introduction of the Sonim XP10. Outside competition from Sonim would likely force Siyata to lower the sales price of its new smartphone. For these reasons, Mr. Bernstein, Sellenfreund, and Goldstein have asked you to analyze how changes in the price of the Siyata SDX and the quantity sold will affect the NPV of the project. Questions 1. How sensitive is the NPV to changes in the price of the Siyata SDX? 2. How sensitive is the NPV to changes in the quantity sold of the Siyata SDX? 2 Syata SDX Project Financial Analyss is 3. Based on your analysis, NPV is more sensitive to changes in which variable: price or fixed costsin 4. What is your recommendation to Mr. Sellenfreund, Bernstein, and Goldstein? a. Why did you make this recommendation? Sivata is a midsized electronics manufacturer serving the US public safety (police, fire, EMS, and military) communications market. One of the major revenue-producing items manufactured by Siyata is a mission-critical push-to-talk. Andreidebased smartphone that looks like a radie and interoperates with traditional radio systems. Syyata has one smartphone model on the market, the SD7, and sales have been excellent. The Siyata SD7 is unique because it is locked down to a single function, allowing for radio communications over a government cellular network for public safety organizations, It is low-cost compared to traditional P25 radio equipment, which can run above $10,000 for the most expensive models. However, as with any electronic item, technology changes rapidly, and the current Siyata SD7 has limited features compared to newer models from competitor Sonim and its XPSPlus olfering. Siyata invested $750K for a new radio-interoperable smartphone with a more robust high-powered antenna for long-range communications to cellular towers. This model will be known as the Siyata SDX Finances - Siyata invested $200K in a market sales study for SDX sales. - Variable costs are \$215 per Siyata SDX. - Siyata estimates fixed costs at \$6.1M yearly. - Siyata has a 35% corporate tax rate. - Siyata's board of directors, led by Peter Goldstein, has set a required return of 12%. The estimated sales volume is as follows: - First Year 155K - Second Year: 165K - Third Year 125K - Fourth Year 95K - Fifth Year 75K Glenn Kennedy, Siyata's VP of Sales, plans for a $520 /unit introductory price for the SDX Gerald Bemstein, Siyata's CFO, plans to purchase manufacturing equipment for the SDX for $40.5M and will depreciate equipment on a seven-year MACRS schedule. Mr. Bernstein estimates a $6.1M equipment valuation after the fifth year of operation. Marc Seelenfreund, Siyata's CEO, estimates the ceasing of production of the existing model in two years. If Siyata does not introduce the SDX, sales of the SD7 will be 95K (first year) and 65K (second year) units for the next two years. Siyata SD7s have a unit price of $380. The Siyata SD7 has a variable cost of $145 each and fixed costs of $4.3M annually. if Siyata does 1 introduce the SDX, sales of the SD7 will fall by 30K ulis werking capital for the SDX will be 20% SD7s will see a unit price slide to $210 per device. Net working capital for the SDX will be 20\% of sales and will occur with the timing of the cash flows for the year. There is no initial outlay fo year's sales. Questions 1. What is the payback period (PBP) of the Siyata SDX project? a. Based on your analysis of PBP, should Siyata accept the SDX project if the required payback period is 3 years? 2. What is the profitability index of the Siyata SDX project? 3. What is the IRR of the Siyata SDX project? a. Based on your analysis of IRR, should Siyata accept the SDX project? 4. What is the NPV of the Siyata SDX project? a Based on your analysis of NPV, should Siyata accept the SDX project? 5. At what price would Siyata be indifferent to accepting the SDX project? Part II: Scenario Analysis Mr. Bemstein believes that the SDX project's unit sales, variable costs, and equipment cost projections are accurate to 20% Questions 1. What are the best case NPV, IRR, and PBP of the project? 2. What are the worst-case NPV, IRR, and PBP of the project? a. Would you still accept the project under this scenario? Part III: Sensitivity Analysis Mr. Bemstein, Kennedy, and Seelenfreund have received your capital budgeting analysis for the Siyata SDX Mr. Sellenfreund was pleased with the results but is still concerned about the SDX project. Unconvinced of the sales projection accuracy presented by an outside market research firm selected by Mr. Kennedy, Mr. Bernstein has asked you to investigate the matter further. Additionally, because of rapid technological changes, the chairman, Mr. Goldstein, was concerned that Sonim could consume a significant market share with the introduction of the Sonim XP10. Outside competition from Sonim would likely force Siyata to lower the sales price of its new smartphone. For these reasons, Mr. Bernstein, Sellenfreund, and Goldstein have asked you to analyze how changes in the price of the Siyata SDX and the quantity sold will affect the NPV of the project. Questions 1. How sensitive is the NPV to changes in the price of the Siyata SDX? 2. How sensitive is the NPV to changes in the quantity sold of the Siyata SDX? 2 Syata SDX Project Financial Analyss is 3. Based on your analysis, NPV is more sensitive to changes in which variable: price or fixed costsin 4. What is your recommendation to Mr. Sellenfreund, Bernstein, and Goldstein? a. Why did you make this recommendation