Conch Republic Electronics,Part 1

Equipment $ 43,500,000
Salvage value $ 6,500,000
R&D $ 750,000 sunk cost
Marketing study $ 200,000 sunk cost

Year 1 Year 2 Year 3 Year 4 Year 5

Sales(units) 155,000 165,000 125,000 95,000 75,000
Depreciation rate 14.29% 24.49% 17.49% 12.49% 8.93%
Sales of old phone 95,000 65,000
Lost sales 30,000 30,000

Price $ 535
VC $ 220
FC $ 6,400,000
Price of old phone $ 385
Revised price
of old phone $ 215
VC of old phone $ 145
Tax rate 21%
NWC percentage 20%
Required return 12%

Old phone price reduction $ 170

Sales Year 1 Year 2 Year 3 Year 4 Year 5

New $82,925,000 $88,275,000 $66,875,000 $50,825,000 $40,125,000
Lost sales (11,550,000) (11,550,000)
Lost rev. (11,050,000) (5,950,000)
Net sales $60,325,000 $70,775,000 $66,875,000 $50,825,000 $40,125,000

VC
New $34,100,000 $36,300,000 $27,500,000 $20,900,000 $16,500,000
Lost sales (4,350,000) (4,350,000)
$29,750,000 $31,950,000 $27,500,000 $20,900,000 $16,500,000

Sales $60,325,000 $70,775,000 $66,875,000 $50,825,000 $40,125,000

VC 29,750,000 31,950,000 27,500,000 20,900,000 16,500,000
Fixed costs 6,400,000 6,400,000 6,400,000 6,400,000 6,400,000
Dep 6,216,150 10,653,150 7,608,150 5,433,150 3,884,550
EBT $17,958,850 $21,771,850 $25,366,850 $18,091,850 $13,340,450
Tax 3,771,359 4,572,089 5,327,039 3,799,289 2,801,495
NI $14,187,492 $17,199,762 $20,039,812 $14,292,562 $10,538,956
+Dep 6,216,150 10,653,150 7,608,150 5,433,150 3,884,550
OCF $20,403,642 $27,852,912 $27,647,962 $19,725,712 $14,423,506

NWC
Beg $0 $12,065,000 $14,155,000 $13,375,000 $10,165,000
End 12,065,000 14,155,000 13,375,000 10,165,000 0
NWC CF ($12,065,000) ($2,090,000) $780,000 $3,210,000 $10,165,000

Net CF $8,338,642 $25,762,912 $28,427,962 $22,935,712 $24,588,506

Salvage
BV of equipment $ 9,704,850
Taxes 673,019
Salvage CF $ 7,173,019

Net CF Time
0 $ (43,500,000)
1 8,338,642
2 25,762,912
3 28,427,962
4 22,935,712
5 31,761,524

Payback period 2.331

PI 1.858
IRR 37.51%
NPV $37,316,113.42