Conch Republic Electronics, Part 1 Conch Republic Electronics is a midsized electronics manu be purchased for $43.5 million and will be depreciated on a facturer located in Key West, Florida. The company president seven-year MACRS schedule. It is believed the value of the is Shelley Couts, who inherited the company. When it was equipment in five years will be S6 million founded over 70 years ago, the company originally repaired radios and other household appliances. Over the years, the tures a smartphone. Production of the existing model is ex company expanded into manufacturing and is now a reputable pected to be terminated in two years. If Conch Republic does As previously stated, Conch Republic currently manufac anufacturer of various electronic items. Jay McCanless, a re- not introduce the new smartphone, sales will be 95.000 units cent MBA graduate, has been hired by the company's finance and 65,000 units for the next two years, respectively. The price of the existing smartphone is $385 per unit, with variable costs department. One of the major revenue-producing items manufactured o $145 ach and fixed costs o by Conch Republic is a smartphone. Conch Republic currently Republic does introduce the new smartphone, sales of the ex has one smartphone model on the market, and sales have been isting smartphone will fall by 30,000 units per excellent. The smartphone is a unique item in that it comes in a price of the existing units will have to be lowered t nd the o $215 each. pical colors and is preprogrammed to play Jimmy Net working capital for the smartphones will be 20 percent initial outlay for NWC, but Buffett music. However, as with any electronic item, technol of sales and will occur with the timing ogy changes rapidly, and the current smartphone has limited the year; for example, there is no features in comparison with newer models. Conch Republic changes in NWC will first occur in Year I with the first year spent $750,000 to develop a prototype for a new smartphone that has all the features of the existing smartphone but adds a required return of 12 percent sales. Conch Republic has a 21 percent corporate tax rate and Shelley has asked Jay to prepare a report that answers the w features such as WiFi tethering. The company has spent a further $200,000 for a marketing study to determine the ex- pected sales figures for the new smartphone following questions. Conch Republic can manufacture the new smartphones for QUESTIONS $220 each in variable costs. Fixed costs for the operation are 1. What is the payback period of the project? estimated to run $6.4 million per year. The estimated sales 2. What is the profitability index of the project? volume is 155,000, 165,000, 125,000, 95,000, and 75,000 per year for the next five 3. What is the IRR of the project? years, respectively. The unit price of the new smartphone will be $535. The necessary equipment can 4. What is the NPV of the project