Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
CHAPTER 10
CONCH REPUBLIC ELECTRONICS,
PART 1
This is an in-depth capital budgeting problem. The initial cash outlay at Time 0 is the cost of the new
equipment, $43,500,000. The sales each year are a combination of the sales of the new smart phone,
the lost sales each year, and the lost revenue. In this case, the lost sales are 30,000 units of the old
smart phone each year for two years at a price of $385 each. The company will also be forced to
reduce the price of the old smart phone on the units they will still sell for the next two years. So, the
total change in sales is:
Sales = New sales – Lost sales – Lost revenue
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
VC
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
NWC
Taxes on sale of equipment = (BV – MV)TC
So, the cash flows of the project are:
Time Cash Flow
0 –$43,500,000
1 8,338,642
1. The payback period is:
2. The profitability index is:
3. The project IRR is:
4. The project NPV is:
