$.$

A B C

Pancho Republic Electronics is a midsized electronics manufacturer founded over $70$ years ago that

originally repaired radios, but it expanded and now is a reputed manufactures of various electronic

items including smart phones, and is located in Key West, Florida. The company is presided by

Shelley Couts, who inherited the company. you were hired as a recent MBA in the finance

Pancho Republic can manufacture a new smart phone for $$165$ each in variable costs. Fixed costs

are expected to run $$4\mathrm{.}9$ million per year. The estimated sales are $84,000,99,000,130,000,$

$110,000,$ and $90,000$ per year for the next $5$ years, respectively. The price per unit will be $$380.$

The necessary equipment can be purchased at $$20\mathrm{.}514\mathrm{.}29\%,24\mathrm{.}49\%,17\mathrm{.}49\%,12\mathrm{.}49\%,8\mathrm{.}93\%,8\mathrm{.}92\%,8\mathrm{.}93\%,$ and $4\mathrm{.}46\%$ $$4\mathrm{.}5$ million. Net working

capital for the new smart phone project will be $20\%$ of each year sales with the timing of the cash

flows's sales $($i$.$e$.,$ at the end of each year$).$ No initial working capital is incurred.

$6$

Pancho Republic already manufactures a smart phone model, which it intends to stop manufacturing

in two years. If it does not stop, it will sell $80,000$ and $60,000$ units at $$310$ each, respectively over

the next two years. The variable cost per unit of the existing model is $$120$ and fixed costs are

$$1,800,000$ per year. With the introduction of the new smart phone, sales of the existing model will

drop by $15,000$ units per year and the unit price will have to be lowered to $$25520$ Points