Payback period, profitability index, IRR and NPV

Conch Republic Electronics

Spent $750,000 to develop 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 $155.00 each.
Fixed Costs for the operation are estimated at $4.7 million per year.
Unit Price $360.00 each
Necessary equipment to produce the PDA will cost $21.5 million, with depreciation for 7 years MACRS schedule.
It is believed that this equipment after 5 years will be worth $4.1 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%

Estimated sales volume per year is
1. 74,000
2. 95,000
3. 125,000
4. 105,000
5. 80,000

What is the payback period, profitability index, IRR and the NPV of this project?

Solution Summary

The solution explains how to calculate the payback period, profitability index, IRR and NPV