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    Payback period, profitability index, IRR and NPV

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    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?

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    Solution Summary

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