Reference no: EM131342595
Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. When it was founded over 70 years ago, the company originally repaired radios and other household appliances. Over the years, the company expanded into manufacturing and is now a reputable manufacturer of various electronic items. Jay McCanless, a recent MBA graduate, has been hired by the company’s 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 smart phone but adds new features such as Wi-Fi 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 phones for $185 each in variable costs. Fixed costs for the operation are estimated to run $5.3 million per year. The estimated sales volume is 74,000, 95,000, 125,000, 105,000, and 80,000 per year for the next five years, respectively. The unit price of the new smart phone will be $480. The necessary equipment can be purchased for $38.5 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $5.4 million.
As previously stated, Conch Republic currently manufactures a smart phone. Production of the existing model is expected to be terminated in two years. If Conch Republic does not introduce the new smart phone, sales will be 80,000 units and 60,000 units for the next two years, respectively. The price of the existing smart phone is $310 per unit, with variable costs of $125 each and fixed costs of $1,800,000 per year. If Conch Republic does introduce the new smart phone, sales of the existing smart phone will fall by 15,000 units per year, and the price of the existing units will have to be lowered to $275 each. 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; for example, there is no initial outlay for NWC, but changes in NWC will first occur in Year 1 with the first year’s sales. Conch Republic has a 35 percent corporate tax rate and a 12 percent required return.
Shelley has asked Jay to prepare a report that answers the following questions.
What is the payback period of the project?
What is the profitability index of the project?
What is the IRR of the project?
What is the NPV of the project?
Make an appropriate recommendation based on the facts presented.
Implement to encourage customers to buy new ecocar
: A car company has developed a new car, ecoCar, that gets 100 miles per gallon (mpg), but the cost is slightly higher than cars currently on the market. What type of incentives could the manufacturer offer or ask Congress to implement to encourage cus..
|
Human testis produce testosterone and its function
: State which cells in a human testis produce testosterone and its function(s) and state which hormones are produced by a human ovary, and their functions.
|
What events led up to the one depicted
: What events led up to the one depicted? Did anything significant happen afterward? What were you feeling at the time the photo was taken?
|
How many shares will remain after the repurchase
: A firm has 5 million shares outstanding with a market price of $30 per share. The firm has $30 million in extra cash (short-term investments) that it plans to use in a stock repurchase, the firm has no other financial investments or any debt. What is..
|
What is the payback period-profitability index of project
: Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. When it was founded over 70 years ago, the company originally repaired radios and other..
|
Research an erp system or an erp software application
: Research an ERP system or an ERP software application, and address the following:In your own words, define enterprise resource planning (ERP).Provide the name of the ERP system or the ERP software application you researched along with a web link to t..
|
Can a utilitarian consistently reject as immoral
: Can a utilitarian consistently reject as immoral the enslavement of a small group of people whose enslavement brings great happiness to a much larger group of people
|
Organs and structures of the urinary system
: Identify and give functions of the organs and structures of the urinary system.
|
Differentiate between normal and abnormal sediments
: List and describe different sediments that can be seen in urine and differentiate between normal and abnormal sediments.
|