Conch Republic Electronics Conch Republic Electronics is a midsized 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 companys 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 spent $750,000 to develop 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 spent a further $200,000 for a marketing study to determine the expected sales figures for the new PDA.

Conch Republic can manufacture the new PDA for $150 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 seven-year straight line schedule. It is believed the value of the equipment in five years will be $3.5 million.

As previously stated, Conch Republic currently manufactures a PDA. Production of the existing model is expected to be terminated in two years. If Conch Republic does not intro- duce the new PDA, sales will be 80,000 units and 60,000 units for the next two years, respectively. The price of the existing PDA is $280 per unit, with variable costs of $120 each and fixed costs of $1,800,000 per year. If Conch Republic does introduce the new PDA, sales of the existing PDA will fall by 15,000 units per year, and the price of the existing units will have to be lowered to $240 each. 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 payback period of the project?

What is the profitability index of the project?

What is the IRR of the project?

What is the NPV of the project?