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Conch Republic Electronics Case Conch Republic...




Conch Republic Electronics Case Conch Republic Electronics is a mid-sized electronics manufacturer located in Key West, Florida. The company president is Shelly Gouts, who inherited the company. The company originally repaired radios and other household appliances when it was founded over 70 years ago. Over the years, the company has expanded, and it is now a reputable manufacturer of various specialty electronic items. Jay McCanless, a recent MBA graduate, has been hired by the company in its finance department. One of the major revenue-producing items manufactured by Conch Republic is a Personal Digital Assistant (PDA). Conch Republic currently has one PDA model on the market and sales have been excellent. The PDA is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffet music. However, as with any electronic item, technology changes rapidly, and the current PDA has limited features in comparison with newer models. Conch Republic spent $750,000 to develop a prototype for a new PDA that has all the features of the existing one, but adds new features such as cell phone capability. The company has spent a further $200,000 for a marketing study to determine the expected sales figures for the new PDA. Conch Republic can manufacture the new PDA for $215 each in variable costs. Fixed costs for the operation are estimated to run $4.3 million per year. The estimated sales volume is 65,000, 82,000, 108,000, 94,000, and 57,000 per each year for the next five years, respectively. The unit price of the new PDA will be $500. The necessary equipment can be purchased for $32.5 million and will be depreciated on a 7-year MACRS schedule. It is believed the value of the equipment in five years will be $3.5 million. Net working capital for the PDAs will be 20 percent of sales and will occur with the timing of the cash flows for the year, for example, there is no initial outlay for NWC, but Changes in NWC will first occur in Year 1 with the first year's sales. Conch Republic has a 35 percent corporate tax rate and a 12 percent required return. Shelly has asked Jay to prepare a report that answers the following questions: 1. What is the payback period of the project? 2. What is the profitability index of the project? 3. What is the IRR of the project?


Paper#8558 | Written in 18-Jul-2015

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