Avionics is a midsized electronics manufacturer founded over 70 years ago that originally repaired racios, but...

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Avionics is a midsized electronics manufacturer founded over 70 years ago that originally repaired racios, 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 department. Avionics can manufacture a new smart phone for $200 each in variable costs. Fixed costs are expected to run $5.5 million per year. The estimated sales are 99,000, 114,000, 140,000, 125,000, and 95,000 per year for the next 5 years, respectively. The price per unit will be $425. The necessary equipment can be purchased at $22.5 million and will be depreciated on a secevn-year MACRS schedule (14.29%, 24.49 %, 17.49 %, 12.49%, 8.93%, 8.92%, 8.93%, and 4.46%). It is believed that the market value of the equipment in 5 years will be $5.0 million. Net working capital for the new smart phone project will be 20% of each year final sales with the timing of the cash flows's sales (i.e., at the end of each year). No initial working capital is incurred. The corporate tax rate for Pancho Electronics is 34 percent, and its required rate of return is 10%. Shelley has asked you to prepare a report that answers the following questions. 3a. (20 Points) What is the profitability index of the project? 4 5 b. (20 Points) What is the IRR of the project? (20 Points) What is the NPV of the project? (20 Points) At what price would Avionics be indifferent to accepting the project? Please show how did you calculate this price, and explain the implications. Avionics already manufactures a smart phone model, which it intends to stop manufacturing in two years. If it does not stop, it will sell 90,000 and 70,000 units at $340 each, respectively over the next two years. The variable cost per unit of the existing model is $140 and fixed costs are $2,100,000 per year. With the introduction of the new smart phone, sales of the existing model will drop by 20,000 units per year and the unit price will have to be lowered to $270. 5 7 c. B D d. 20 21 e. (20 Points) At what level of variable costs per unit would Avionics be indifferent to accepting the project? Please show how did you calculate this price, and explain the 4 Pretax salvage value 5 R&D 6 Marketing study 7 8 9 Sales (units) 10 Sales of old PDA 11 Lost sales 12 Depreciation rate 13 14 Price 15 VC 16 FC 17 Price of old PDA 18 Price reduction 19 of old PDA 20 VC of old PDA 21 Tax rate 22 NWC percentage 23 Required rate of return $5,000,000 $750,000 $200,000 Year 1 99000 90000 20000 14.29% Year 2 114000 70000 20000 24.49% $425 $200 $5,500,000 $340 $70 $140 34% 20% 10% Year 3 140000 17.49% Year 4 125000 12.49% Year 5 95000 8.93% 25 26 Sales 27 New Sales 28 Lost sales 29 Lost revenue 30 Net sales 31 32 VC 33 New 34 Lost sales 35 Total VC 36 37 38 Sales 39 VC 40 Fixed costs 41 Dep 42 EBT 43 Tax 44 NI Year 1 ? ? ? ? ? .... ? ? ? ? ? ? ? ? ? ? Year 2 ? ? ? ? ? ? ? ? ? ? ? ? Year 3 ? ? ? ? ? ? ? ? ? ? ? Year 4 ? ? ? ? ? ? ? ? ? ? ? ? ? ? Year 5 ? ? ? 45 +Dep 46 OCF 47 48 NWC 49 Beg 50 End 51 NWC CF 52 53 Net CF 54 55 Salvage 56 BV of equipment 57 Taxes 58 59 Salvage CF 60 61 62 63 64 ? ? ? ? ? ? ? ? ? Time 0 1 2 ? ? ? ? ? Cash flow ? ? ? ? ? ? ? ? ? ? ? ? ? ? Profitability index IRR Show all dormulas and calculations NPV Minimum price Time 0 1 Maximum VC 23 +5 4 Cash flow ? ? ? ? ? ? ? ? ? ? ? Avionics is a midsized electronics manufacturer founded over 70 years ago that originally repaired racios, 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 department. Avionics can manufacture a new smart phone for $200 each in variable costs. Fixed costs are expected to run $5.5 million per year. The estimated sales are 99,000, 114,000, 140,000, 125,000, and 95,000 per year for the next 5 years, respectively. The price per unit will be $425. The necessary equipment can be purchased at $22.5 million and will be depreciated on a secevn-year MACRS schedule (14.29%, 24.49 %, 17.49 %, 12.49%, 8.93%, 8.92%, 8.93%, and 4.46%). It is believed that the market value of the equipment in 5 years will be $5.0 million. Net working capital for the new smart phone project will be 20% of each year final sales with the timing of the cash flows's sales (i.e., at the end of each year). No initial working capital is incurred. The corporate tax rate for Pancho Electronics is 34 percent, and its required rate of return is 10%. Shelley has asked you to prepare a report that answers the following questions. 3a. (20 Points) What is the profitability index of the project? 4 5 b. (20 Points) What is the IRR of the project? (20 Points) What is the NPV of the project? (20 Points) At what price would Avionics be indifferent to accepting the project? Please show how did you calculate this price, and explain the implications. Avionics already manufactures a smart phone model, which it intends to stop manufacturing in two years. If it does not stop, it will sell 90,000 and 70,000 units at $340 each, respectively over the next two years. The variable cost per unit of the existing model is $140 and fixed costs are $2,100,000 per year. With the introduction of the new smart phone, sales of the existing model will drop by 20,000 units per year and the unit price will have to be lowered to $270. 5 7 c. B D d. 20 21 e. (20 Points) At what level of variable costs per unit would Avionics be indifferent to accepting the project? Please show how did you calculate this price, and explain the 4 Pretax salvage value 5 R&D 6 Marketing study 7 8 9 Sales (units) 10 Sales of old PDA 11 Lost sales 12 Depreciation rate 13 14 Price 15 VC 16 FC 17 Price of old PDA 18 Price reduction 19 of old PDA 20 VC of old PDA 21 Tax rate 22 NWC percentage 23 Required rate of return $5,000,000 $750,000 $200,000 Year 1 99000 90000 20000 14.29% Year 2 114000 70000 20000 24.49% $425 $200 $5,500,000 $340 $70 $140 34% 20% 10% Year 3 140000 17.49% Year 4 125000 12.49% Year 5 95000 8.93% 25 26 Sales 27 New Sales 28 Lost sales 29 Lost revenue 30 Net sales 31 32 VC 33 New 34 Lost sales 35 Total VC 36 37 38 Sales 39 VC 40 Fixed costs 41 Dep 42 EBT 43 Tax 44 NI Year 1 ? ? ? ? ? .... ? ? ? ? ? ? ? ? ? ? Year 2 ? ? ? ? ? ? ? ? ? ? ? ? Year 3 ? ? ? ? ? ? ? ? ? ? ? Year 4 ? ? ? ? ? ? ? ? ? ? ? ? ? ? Year 5 ? ? ? 45 +Dep 46 OCF 47 48 NWC 49 Beg 50 End 51 NWC CF 52 53 Net CF 54 55 Salvage 56 BV of equipment 57 Taxes 58 59 Salvage CF 60 61 62 63 64 ? ? ? ? ? ? ? ? ? Time 0 1 2 ? ? ? ? ? Cash flow ? ? ? ? ? ? ? ? ? ? ? ? ? ? Profitability index IRR Show all dormulas and calculations NPV Minimum price Time 0 1 Maximum VC 23 +5 4 Cash flow ? ? ? ? ? ? ? ? ? ? ?