Conch Republic Electronics is a mid sized 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 personal digital assistant (PDA). Conch Republic currently has one PDA model on the market, and sales have been excellent. The PDA 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 PDA has limited features in comparison with newer models. Conch Republic developed a prototype for a new PDA that has all the features of the existing PDA but adds new features such as cell phone capability. The company has performed a marketing study to determine the expected sales figures for the new PDA.
Conch Republic can manufacture the new PDA for $200 each in variable costs. Fixed costs for the operation are estimated to run $4.5 million per year. The estimated sales volume is 70,000, 80,000, 100,000, 85,000, and 75,000 per each year for the next five years, respectively. The unit price of the new PDA will be $340. The necessary equipment can be purchased for $16.5 million and will be depreciated on a 5 year straight-line schedule.
Net working capital investment for the PDAs will be $6,000,000 the first year of operations. Of course NWC will be recovered at the projects end. Conch Republic has a 35 percent corporate tax rate and a 12 percent required return.
Shelly has asked Jay to prepare a report that answers the following questions:
What is the IRR of the project?
What is the NPV of the project, based on the required rate of return

1. What is the IRR of the project?
2. What is the NPV of the project, based on the required rate of return of 12%?

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B Time Period 1 Conch Republic Electronics - 2010 2 New PDA Project 3 Financial Analysis 4 5 6 7 8 9 Investment 10 Depreciation Straight Line 5 years 11 Annual Depreciation 12 13 14 15 16 New PDA Sales Units 17 Unit Price 18 19 Sales of New PDA 20 с EBIT $ 340 21 22 Variable Cost $ 200 23 Unit 24 Gross Margin 25 26 27 Fixed Cost 28 Depreciation 29 30 31 32 Taxes 33 34 35% Rate Net Income 35 36 Add Back Depreciation 37 Operating Cash Flow 38 39 40 41 42 43 44 45 Unit NWC Cash Flow Net Cash Flow D Today 0 $0 ?? ?? ?? ?? ?? ?? ?? ?? ?? E ?? 1 70,000 $4,500,000 #VALUE! $ (6,000,000.00) F B Time Period 1 Conch Republic Electronics - 2010 2 New PDA Project 3 Financial Analysis 4 5 6 7 8 9 Investment 10 Depreciation Straight Line 5 years 11 Annual Depreciation 12 13 14 15 16 New PDA Sales Units 17 Unit Price 18 19 Sales of New PDA 20 с EBIT $ 340 21 22 Variable Cost $ 200 23 Unit 24 Gross Margin 25 26 27 Fixed Cost 28 Depreciation 29 30 31 32 Taxes 33 34 35% Rate Net Income 35 36 Add Back Depreciation 37 Operating Cash Flow 38 39 40 41 42 43 44 45 Unit NWC Cash Flow Net Cash Flow D Today 0 $0 ?? ?? ?? ?? ?? ?? ?? ?? ?? E ?? 1 70,000 $4,500,000 #VALUE! $ (6,000,000.00) F

Answer rating: 100% (QA)

A 1 Year 2 Estimated Sale Volume 3 Unit Price 4 Unit Va... View the full answer