CHAPTER CASE

Conch Republic Electronics

Conch Republe Electuonios is a midsured electronics manulacturer located in Key West. Flonda. The company president is Shely Couts, whe irherted the company. The company originally repaired radios and other household applavces when it was founded more than $70$ years ago. Over the years, the company has expanded, and it is now a reputable mandacturer of various speciaty electronic toms. day McCarless, a recent MBA graduate, has been Nired by the company in its finance departmert.

Ore of the major reverue$-$prosucing homs manulactured by Conch Republe is a smartphone. Conch Republc corrently has one smarphone model on the markec, and sales have been axcellene. The smartphone has limited features in comparison with newer models. Conch Republic spent $$1\mathrm{.}5$ milion to develop a protetype for a new smartphone that has all the features of the existing one but adds new teatures such as W$-$FA whering The company has spent a furter $$250\mathrm{.}000$ for a marketing study lo determine the expected sales figuves for the new smartphone.

Conch Ruputic can manulucture the new smartphone for $$270$ each in variable covts. Fared costs for the operation are estimated to run $$5\mathrm{.}4$ milion per year. The estimated sales volumes are $67,$ O$00.108,000,$$$0,000,80,000,$ and $55,000$ per year for each of the next tive years, respectivly. The unit prioe of the new smartohone will be $$525.$ The necessary equipment can be purchased for $$41\mathrm{.}5$ milion and will be depreciated on a seven$-$year MACFA's schedule. It is beleved the value of Dee equipment in five years will be $$5\mathrm{.}9$ milion. Year I whth the frsit yoars sales. Conch Reputlic has a $22$ percent ocrporate tixx rale and a required refuin of $12$ percent.

Shely has asked day to prepare a repon that answers the following questions:

QUESTIONS

What is the payback period of the project?

What is the protiablity index of the propect?

What is the IPR of the project?

What is the NPY of the proipert?

How sensitve is the NPY to changes in the price of the new smatphone?

How sengtive is the NPY$/$ is charges in the quartily sold?

Should Conch Republic proouce he new smartchone?

B$.$ Suppose Conch Republe loses sales on other models beciute of the introduction of the now model. How mould nis aflect your anilyis?