Conch Republic Electronics is a midsized electronics el ectronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. When it was founded oer !" years a#o, the company ori#inally repaired radios and other household appliances. $er the years, the company e%panded into manufacturin# and is now a reputable manufacturer of arious electronic items. &ay 'cCanless, a recent '() #raduate, has been hired by the company*s finance department. $ne of the ma+or reenueproducin# items manufactured by Conch Republic is a smart phone. Conch Republic currently has one smart phone model on the mar-et, and sales hae been e%cellent. The smart phone is a uniue item in that it comes in a ariety of tropical colors and is prepro#rammed to play &immy (uffett music. /oweer, as with any electronic item, technolo#y chan#es rapidly, and the current smart phone has limited features in comparison with newer models. Conch Republic spent 0!1",""" to deelop a prototype for a new smart phone that has all the features of the e%istin# smart phone but adds new features such as WiFi tetherin#. The company has spent a further 02"",""" for a mar-etin# study to determine the e%pected sales fi#ures for the new smart phone. 3a#e 456 Conch Republic can manufacture the new smart phones for 0271 each in ariable costs. Fi%ed costs for the operation are estimated to run 08.7 million per year. The estimated sales olume is 711,""", 781,""", 721,""", 61,""", and !1,""" per year for the ne%t fie years, respectiely. The unit price of the new smart phone will be 012". The necessary euipment can be purchased for 05".1 million and will be depreciated on a seenyear ')CRS schedule. 9t is belieed the alue of the euipment in fie years will be 08.7 million. )s preiously stated, Conch Republic currently manufactures a smart phone. 3roduction of the e%istin# model is e%pected to be terminated in two years. 9f Conch Republic does not introduce the new smart phone, sales will be 61,""" units and 81,""" units for the ne%t two years, respectiely. The The price of the e%istin# smart phone is 04:" per unit, u nit, with ariable costs of 0751 each and fi%ed costs of 05.4 million per year. 9f Conch Republic does introduce the new smart phone, sales of the e%istin# smart phone will fall by 4",""" units per year, and the price of the e%istin# units will hae to be lowered lo wered to 027" each. ;et wor-in# capital for the smart phones will be 2" percent of sales and will occur with the timin# of the cash flows for the year< for e%ample, there is no initial outlay for ;WC, but chan#es in ;WC will first occur in =ear =ear 7 with the first year*s sales. Conch Republic has a 41 percent corporate ta% rate and a reuired return of 72 percent. Shelley has as-ed &ay to prepare a report that answers the followin# uestions. >?EST9$;S What is the paybac- period of the pro+ect@
What is the profitability inde% of the pro+ect@ What is the 9RR of the pro+ect@ What is the ;3A of the pro+ect@ show your calculations pleaseeeeee........ pl easeeeeee........
1.Payback period of the project = 2 + (14,647,024/16,601,488) = 2. year! 2.P" of #$f%o& #$f%o& =',0,7.0 =',0,7.0+10,747 +10,747,160.40 ,160.40+11, +11,816,61 816,611.24+ 1.24+11, 11,082,1 082,1.02+7,08 .02+7,081,08.7 1,08.72 2 ='44,6 ='44,61,6 1,68.8 8.88P" 8P" of *tf% *tf%o& o& = '2,00, '2,00,000 000Pro Profit fitabi% abi%ity ity #$de #$de = P" of #$f%o& #$f%o&/P" /P" of *tf%o&P# = 44,61,68.88/2,00,000= 1.7 .#--
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+(16,601,488/1.12)+(17,4,28/1.124)+(12,480,08/1.12)= '41,81,6 . or each do%%ar cha$3e i$ the price, the project! P" &i%% cha$3e 184 462,16 ' 5ia the eact !ae directio$. o eai$e the !e$!iti5ity of the P" to cha$3e! by the price # ca%c%ated a price of 10 ' for $it price. or cop%ete ca%c%atio$ p%ea!e !ee the attache$t o$ pa3e 2. 6. or o$e $it per year cha$3e i$ !o%d a$tity, the project! P" &i%% cha$3e 6,24 ' 5ia !ae directio$. o eai$e the !e$!iti5ity of the P" to cha$3e! i$ the a$tity !o%d, # ca%c%ated that &e &i%% i$crea!e i$crea!e 10 $it! !o%d per year. year. or cop%ete cop%ete ca%c%atio$ ca%c%atio$ p%ea!e p%ea!e !ee the attache$t attache$t o$ pa3e 2.
7. 9o$ch !ho%d ha5e prodce the $e& P:; beca!e it ha! a po!iti5e P". hro3h a arketi$3 !trate3y, 9o$ch -epb%ic had deteri$ed t&o iporta$t factor! i$ the $e& prodct i$5e!te$t. hey ha5e deteri$ed that a $e& P:; &i%% co!t 00 ' a$d e!tiated !a%e! of the $e& P:; o5er the $et year! to be 6 000, 82 000, 108 000, 4 000 a$d 7 000 $it!. ;ccordi$3 tho!e back3ro$d ateria%!, abo5e there are recoe$datio$ that the $e& P:; !ho%d be profitab%e. profitab%e. 8. he deci!io$ to i$trodci$3 the $e& P:; o$ a arket &o%d ho&e5er re!%t, that the 9o$ch -epb%ic &i%% %o!t !a%e! o$ their o%der 5er!io$! of e!tab%i!hed 5er!io$! of P:;. -e!%t of %a$chi$3 a $e& P:; &o%d affect ca!h f%o&!, !o i$ thi! ca!e, the ca!h f%o& !ho%d be adj!ted do&$&ard to ref%ect %o!t profit! o$ the o%der 5er!io$!.