公司理财第九版课后案例Conch-Republic-Electronics

Conch Republic Electronics Analysis

Analysis of Conch Republic Electronics

The new PDA:

The existing model:

There is no initial outlay for NWC; and Net Working Capital for the PDAs will be 20% of sales.

The value of the equipment in five years will be $4.1 million.

Introducing the new PDA, it causes the exiting PDA sales fall down and the price fall down.

Therefore: sales for year 1=74000*$360-15000*$290-(80000-15000)*($290-$255)

=$20015000

Variable cost for year 1=74000*$155-15000*$120=$9670000

Sales for year 2=95000*$360-15000*$290-(60000-15000)*($290-$255)

=$28275000

Variable cost for year 2=95000*$155-15000*$120=$12925000

Project cash flow=Project operating cash flow-Project changes in net working

capital-project capital spending

Operating cash flow=EBIT+Depreciation-Taxes

$5,265,350-$3,760,350-$2,685,350-$1,919,950=$4796650

Pretax salvage value of equipment=$4100000

Part1

1 What is the payback period of the project?

=3.16 years

2. What is the profitability index of the project?

PI= (the present value of the future cash flow)/(initial investment)

PV of the future cash flow=$662,118.30+$5,670,737.01+$8,236,986.17

+$8,462+$11,451,133.56=$34,483,611.62

PI=$34,483,611.62 /$21500000=1.60

3. What is the IRR of the project?

IRR is the return that makes the NPV=0.

Therefore:NPV=0=-$21500000+($741,572.50/(1+IRR)^1)+($7,113,372.50

/(1+IRR)^2)+ ($11,572,372.50/(1+IRR)^3)+ ($13,316,122.50/(1+IRR)^4) ($20180810 / (1+IRR) ^5)

Use the EXCEL we can get the IRR=27.62%

4. What is the NPV of the project?

NPV=-$21500000+$662,118.30+$5,670,737.01+$8,236,986.17+$8,462,636.58 +$11,451,133.56 =$12,983,611.62

Part2

5. How sensitive is the NPV to change in the price of the new PDA?

We suppose the price increase $10, so the price will be$370 per unit

NPV=-$21500000+$959,439.73+$6,129,522.08+$8,772,600.80

+$8,921,798.39+$11,865,355.17=$15,148,716.18

Therefore:

The coefficient of price sensitive= ($15,148,716.18 -$12,983,611.62)/ ($370-$360)

=$216510.46

From the coefficient of the price sensitive, we can know that if the price increase $1,the NPV increase S216510.46.

6. How sensitive is the NPV to change in quantity sold of the New PDA?

We suppose the quantity increase 1000 per year.

NPV=-$21500000+$716,805.80+$5,776,963.09+$8,331,830.88+$8,547,319.37

+$11,567,597.93=$13,440,517.07

Therefore:

The coefficient of price sensitive= ($13,440,517.07-$12,983,611.62)/1000

=$456.91

From the coefficient of the quantity sensitive, we can know that if the quantity increases 1, the NPV increase $456.91.

Reference

Ross, Stephen. (2010). Fundamentals of corporate finance: Chapter 10 and Chapter11 Minicase. Asia: McGraw-Hill Education.