Explore BrainMass
Share

Explore BrainMass

    Payback period, profitability index, IRR, NPV

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Conch Republic Electronics

    Spent $750,000 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 $97.00 each.
    Fixed Costs for the operation are estimated at $3.4 million per year.
    Unit Price $275.00 each
    Necessary equipment to produce the PDA will cost $20.5 million, with depreciation for 7 years MACRS schedule.
    It is believed that this equipment after 5 years will be worth $3.5 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. 68,000
    2. 79,000
    3. 105,000
    4. 83,000
    5. 64,000

    2. Calculate payback period, profitability index, IRR, NPV.

    3. How sensitive is the NPV to changes in the price of the new PDA?

    4. How sensitive is the NPV to changes in the quantity sold?

    5. Should they produce the new PDA?

    6. Suppose Conch Republic loses sales on other models because of the introduction of the new model. How would this affect your analysis?

    © BrainMass Inc. brainmass.com October 10, 2019, 1:14 am ad1c9bdddf
    https://brainmass.com/business/profitability-index/payback-period-profitability-index-irr-npv-326441

    Solution Summary

    The solution explains the calculation of payback period, profitability index, IRR and NPV

    $2.19