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    Conch Republic Electronics

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    Conch Republic Electronics
    Spent $750.00 to develop a prototype (or Model) for a new PDA
    Spent an additional $200,000 for marketing study to determine the expected sales.
    Can manufacture the new PDA with variable cost for $86.00 each.
    Fixed Costs for the operation are estimated at $3 million per year.
    Unit Price $250.00 each
    Necessary equipment to produce the PDA will cost $15 million, with depreciation for 7 years MACRS schedule.
    It is believed that this equipment after 5 years will be worth $3 million.
    NWC will be 20% of Sales
    Changes in NWC will occur in Year 1, with the first year sales.
    There is no initial outlay for NWC.
    Conch Republic Corporate Tax Rate is 35% and has a 12% required return.
    Estimated Sales Volumes:
    NWC 20%
    Year Est.Sales of Sales
    1 70,000 14,000
    2 80,000 16,000
    3 100,000 20,000
    4 85,000 17,000
    5 75,000 15,000

    Prepare pro forma financial statement and Project cash flows.
    Calculate NPV, IRR, Payback period, PI

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    https://brainmass.com/business/capital-budgeting/conch-republic-electronics-100386

    Solution Preview

    Conch Republic Electronics
    Spent $750.00 to develop a prototype (or Model) for a new PDA
    Spent an additional $200,000 for marketing study to determine the expected sales.
    Can manufacture the new PDA with variable cost for $86.00 each.
    Fixed Costs for the operation are estimated at $3 million per year.
    Unit Price $250.00 each
    Necessary equipment to produce the PDA will cost $15 million, with depreciation for 7 years MACRS schedule.
    It is believed that this equipment after 5 years will be worth $3 million.
    NWC will be 20% of Sales
    Changes in NWC will occur in Year 1, with the first year sales.
    There is no initial outlay for NWC.
    Conch Republic Corporate Tax Rate is 35% and has a 12% required return.
    Estimated Sales Volumes:
    NWC 20%
    Year Est.Sales of Sales
    1 70,000 14,000
    2 80,000 16,000
    3 100,000 20,000
    4 85,000 17,000
    5 75,000 15,000

    Prepare pro forma financial statement and Project cash flows.
    Calculate NPV, IRR, Payback period, PI

    Year 0 1 2 3 4 5
    I. Investment Outlay
    1. Develop a prototype -750
    2. Marketing study -200,000
    3. Equipment -15,000,000
    4. Total net ...

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