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Chapter 11
Conch Republic Electronics, Part 2
Name
Student ID
Section number
Question conditions
Equipment  $      40,500,000
Salvage value  $         6,100,000
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 PDA                  95,000                   65,000
Lost sales                  30,000                   30,000
Price  $                    520
VC  $                    215
FC  $         6,100,000
Price of old PDA  $                    380
Price reduction
     of old PDA  $                    210
VC of old PDA  $                    145
Tax rate 35%
NWC percentage 20%
Required return 12%
Sensivity analysis
New price  $                    530
Quantity change 100 NOTE: Change in units per year
Fill out all the yellow cells below
Sensitivity to change in price
Sales Year 1 Year 2 Year 3 Year 4 Year 5
New $82,150,000 $87,450,000 $66,250,000 $50,350,000 $39,750,000
Lost sales $11,400,000 $11,400,000
Lost rev. $11,050,000 $5,950,000      
Net sales $59,700,000 $70,100,000 $66,250,000 $50,350,000 $39,750,000
VC
New $33,325,000 $35,475,000 $26,875,000 $20,425,000 $16,125,000
Lost sales $11,400,000 $11,400,000
$21,925,000 $24,075,000 $26,875,000 $20,425,000 $16,125,000
Sales $59,700,000 $70,100,000 $66,250,000 $50,350,000 $39,750,000
VC 21,925,000 24,075,000 26,875,000 20,425,000 16,125,000
Fixed costs 6,100,000 6,100,000 6,100,000 6,100,000 6,100,000
Dep 5,787,450 9,918,450 7,083,450 5,058,450 3,616,650
EBT $25,887,550 $30,006,550 $26,191,550 $18,766,550 $13,908,350
Tax 9,060,643 10,502,293 9,167,043 6,568,293 4,867,923
NI $16,826,908 $19,504,258 $17,024,508 $12,198,258 $9,040,428
+Dep 5,787,450 9,918,450 7,083,450 5,058,450 3,616,650
OCF $22,614,358 $29,422,708 $24,107,958 $17,256,708 $12,657,078
NWC
Beg $0 $11,940,000 $14,020,000 $13,250,000 $10,070,000
End 11,940,000 14,020,000 13,250,000 10,070,000 0
NWC CF ($11,940,000) ($2,080,000) $770,000 $3,180,000 $10,070,000
Net CF $10,674,358 $27,342,708 $24,877,958 $20,436,708 $22,727,078
Salvage
BV of equipment  $         9,035,550
Taxes             1,027,443
Salvage CF  $         7,127,443
Time
Net CF in year 0  $     (40,500,000)
Net CF in year 1 $10,674,358
Net CF in year 2 $27,342,708
Net CF in year 3 $24,877,958
Net CF in year 4 $20,436,708
Net CF in year 5 $29,854,520
NPV  $ 38,463,907.60
DNPV/DP  $       384,639.08
Sensitivity to change in quantity
Sales Year 1 Year 2 Year 3 Year 4 Year 5
New $80,652,000 $85,852,000 $65,052,000 $49,452,000 $39,052,000
Lost sales (11,400,000) (11,400,000)
Lost rev. (11,050,000) (5,950,000)      
Net sales $58,202,000 $68,502,000 $65,052,000 $49,452,000 $39,052,000
VC
New $33,346,500 $35,496,500 $26,896,500 $20,446,500 $16,146,500
Lost sales 4,350,000 4,350,000
$28,996,500 $31,146,500 $26,896,500 $20,446,500 $16,146,500
Sales $58,202,000 $68,502,000 $65,052,000 $49,452,000 $39,052,000
VC 28,996,500 31,146,500 26,896,500 20,446,500 16,146,500
Fixed costs 6,100,000 6,100,000 6,100,000 6,100,000 6,100,000
Dep 5,787,450 9,918,450 7,083,450 5,058,450 3,616,650
EBT $17,318,050 $21,337,050 $24,972,050 $17,847,050 $13,188,850
Tax 6,061,318 7,467,968 8,740,218 6,246,468 4,616,098
NI $11,256,733 $13,869,083 $16,231,833 $11,600,583 $8,572,753
+Dep 5,787,450 9,918,450 7,083,450 5,058,450 3,616,650
OCF $17,044,183 $23,787,533 $23,315,283 $16,659,033 $12,189,403
NWC
Beg $0 $11,640,400 $13,700,400 $13,010,400 $9,890,400
End 11,640,400 13,700,400 13,010,400 9,890,400 0
NWC CF ($11,640,400) ($2,060,000) $690,000 $3,120,000 $9,890,400
Net CF $5,403,783 $21,727,533 $24,005,283 $19,779,033 $22,079,803
Salvage
BV of equipment  $         9,035,550
Taxes             1,027,443
Salvage CF  $         7,127,443
Time
Net CF in year 0  $     (40,500,000)
Net CF in year 1 $5,403,783
Net CF in year 2 $21,727,533
Net CF in year 3 $24,005,283
Net CF in year 4 $19,779,033
Net CF in year 5 $29,207,245
NPV  $       27,875,256
DNPV/DQ  $       278,752.56
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