For this Master It! assignment, refer to the Conch Republic Electronics case at the end of Chapter 9. For your convenience, we have entered the relevant values in the case such as the price, variable cost, etc. on the next page. For this project, answer the following questions: Equipment $32,500,000
Pretax salvage value $3,500,000
R&D $750,000
Marketing study $200,000
Year 1 Year 2 Year 3 Year 4 Year 5
Sales (units) 65,000 82,000 108,000 94,000 57,000
Sales of old PDA 80,000 60,000
Lost sales 15,000 15,000
Depreciation rate 14.29% 24.49% 17.49% 12.49% 8.93%
Price $500
VC $215
FC $4,300,000
Tax rate 35%
NWC percentage 20%
Required return 12%
Year 1 Year 2 Year 3 Year 4 Year 5
Sales $32,500,000 $41,000,000 $54,000,000 $47,000,000 $28,500,000
VC 13,975,000 17,630,000 23,220,000 20,210,000 12,255,000
Fixed costs 4,300,000 4,300,000 4,300,000 4,300,000 4,300,000
Dep 4,644,250 7,959,250 5,684,250 4,059,250 2,902,250
EBT $9,580,750 $11,110,750 $20,795,750 $18,430,750 $9,042,750
Tax 3,353,263 3,888,763 7,278,513 6,450,763 3,164,963
NI $6,227,488 $7,221,988 $13,517,238 $11,979,988 $5,877,788
+Dep 4,644,250 7,959,250 5,684,250 4,059,250 2,902,250
OCF $10,871,738 $15,181,238 $19,201,488 $16,039,238 $8,780,038
NWC
Beg $0 $6,500,000 $8,200,000 $10,800,000 $9,400,000
End 6,500,000 8,200,000 10,800,000 9,400,000 0
NWC CF ($6,500,000) ($1,700,000) ($2,600,000) $1,400,000 $9,400,000
Net CF $4,371,738 $13,481,238 $16,601,488 $17,439,238 $18,180,038
Salvage
BV of equipment $7,250,750
Taxes $1,312,763
Salvage CF $4,812,763
Time Cash flow
0 $(32,500,000)
1 4,371,738
2 13,481,238
3 16,601,488
4 17,439,238
5 22,992,800
What is the profitability index of the project?
What is the IRR of the project?
What is the NPV of the project?
How sensitive is the NPV to changes in the price of the new PDA? Construct a one way data table to help you answer this question.
How sensitive is the NPV to changes in the quantity sold?