2. Chapter 11 Minicase Conch Republic Electronics, Part 2

a. A good spreadsheet model to automatically recalculate cash flows will make it easy to respond to #1 and #2 in Part 2 of this case. Review your spreadsheet model to make sure it is ready to go.

b. In order to respond to #1, assume that one downside standard deviation of price is $75 and that you want to evaluate the impact of one standard deviation and two standard deviation price reductions.

c. To respond to #2, assume that one downside standard deviation of sales volume (quantity sold) is 20% in relation to the base case of forecasted sales volume applied in Part 1. Evaluate the impact on one and two standard deviation reductions in sales volume.

d. This is an added #3. Assess the impact of changes in discount rates on NPV under the rationale that the risks associated with the economy are greater than anticipated. Present an NPV profile graph using the base case from Part 1.

e. Based on all of your analysis above, assess and support your analysis of risk associated with this project and whether it impacts your recommendation in the Part 1 minicase.

MINICASE Conch Republic Electronics, Part 2 Shelley Couts, the owner of Conch Republic Electronics, has has asked Jay to analyze how changes in the price of the new received the capital budgeting analysis from Jay McCanless smartphone and changes in the quantity sold will affect the for the new smartphone the company is considering. Shelley NPV of the project. is pleased with the results, but she still has concerns about the Shelley has asked Jay to prepare a memo answering the fol- new smartphone. Conch Republic has used a small market re- lowing questions. search firm for the past 20 years, but recently the founder of that firm has retired. Because of this, Shelley is not convinced QUESTIONS the sales projections presented by the market research firm 1. How sensitive is the NPV to changes in the price of the are entirely accurate. Additionally, because of rapid changes in technology, she is concerned that a competitor may enter new smartphone? the market . This would likely force Conch Republic to lower 2. How sensitive is the NPV to changes in the quantity sold the sales price of its new smartphone. For these reasons, she of the new smartphone? MINICASE Conch Republic Electronics, Part 2 Shelley Couts, the owner of Conch Republic Electronics, has has asked Jay to analyze how changes in the price of the new received the capital budgeting analysis from Jay McCanless smartphone and changes in the quantity sold will affect the for the new smartphone the company is considering. Shelley NPV of the project. is pleased with the results, but she still has concerns about the Shelley has asked Jay to prepare a memo answering the fol- new smartphone. Conch Republic has used a small market re- lowing questions. search firm for the past 20 years, but recently the founder of that firm has retired. Because of this, Shelley is not convinced QUESTIONS the sales projections presented by the market research firm 1. How sensitive is the NPV to changes in the price of the are entirely accurate. Additionally, because of rapid changes in technology, she is concerned that a competitor may enter new smartphone? the market . This would likely force Conch Republic to lower 2. How sensitive is the NPV to changes in the quantity sold the sales price of its new smartphone. For these reasons, she of the new smartphone