“Conch Republic Electronics: Evaluating a New PDA Project”

I think you will find an Excel spreadsheet to be the most effective way
of completing this assignment. Use the attached Conch Republic Spreadsheet to
help you.
Week 3 Term Project
Conch Republic Electronics
Conch
Republic Electronics is a mid sized electronics manufacturer located in Key
West, Florida. The company president is Shelley Couts, who inherited the
company. When it was founded over 70 years ago, the company originally repaired
radios and other household appliances. Over the years, the company expanded
into manufacturing and is now a reputable manufacturer of various electronic
items. Jay McCanless, a recent MBA graduate, has been hired by the company’s
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
Buffett music. However, as with any electronic item, technology changes
rapidly, and the current PDA has limited features in comparison with newer
models. Conch Republic developed a prototype for a new PDA that has all the
features of the existing PDA but adds new features such as cell phone
capability. The company has performed a marketing study to determine the
expected sales figures for the new PDA.
Conch
Republic can manufacture the new PDA for $200 each in variable costs. Fixed
costs for the operation are estimated to run $4.5 million per year. The
estimated sales volume is 70,000, 80,000, 100,000, 85,000, and 75,000 per each
year for the next five years, respectively. The unit price of the new PDA will
be $340. The necessary equipment can be purchased for $16.5 million and will be
depreciated on a 5 year straight-line schedule.
Net
working capital investment for the PDAs will be $6,000,000 the first year of
operations.  Of course NWC will be recovered at the projects end. 
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:
What is the IRR
of the project?
What is the NPV
of the project, based on the required rate of return of 12%?