Reference no: EM131612797
Please assist in Excel
Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. Over the years, the company expanded into manufacturing and is now a reputable manufacturer of various electronic items. One of the major revenue-producing items manufactured by Conch Republic is a Smartphone. Conch Republic currently has 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 ad is preprogrammed to play Jimmy Buffett music. However as with any electronic item, technology changes rapidly, and the current smartphone has limited features in comparison with newer models. Conch republic spent $750,000 to develop a prototype for a new smartphone that has all the features of the existing one, but adds new features such as WIFI capability. The company has spent a further $200,000 for a marketing study to determine the expected sales figures for the new smartphone. Conch republic can manufacture the new smartphone for $199 each in variable costs. Fixed costs for the operation are estimated to run $5.5 million per year. The estimated sales volume is 64,000, 115,000, 90,000, 75,000, and 54,000 per year for the next five years, respectively. The unit price of the new smartphone will be $485. The necessary equipment can be purchased for $60 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $6.25 million.
Net working capital for the smartphone will be 22% 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% tax rate and a required return of 15%. Shelly has asked Jay to create report that answers the following 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