Conch Republic Electronics, Part 1
Conch Republic Electronics is a midsized 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 smart phone. Conch Republic currently has one smart phone model on the market, and sales have been excellent. The smart phone 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 smart phone has limited features in comparison with newer models. Conch Republic spent $750,000 to develop a prototype for a new smart phone that has all the features of the existing smart phone but adds new features such as WiFi tethering. The company has spent a further $200,000 for a marketing study to determine the expected sales figures for the new smart phone.
Conch Republic can manufacture the new smart phones for $215 each in variable costs. Fixed costs for the operation are estimated to run $6.1 million per year. The estimated sales volume is 155,000, 165,000, 125,000, 95,000, and 75,000 per year for the next five years, respectively. The unit price of the new smart phone will be $520. The necessary equipment can be purchased for $40.5 million and will be
As previously stated, Conch Republic currently manufactures a smart phone. Production of the existing model is expected to be terminated in two years. If Conch Republic does not introduce the new smart phone, sales will be 95,000 units and 65,000 units for the next two years, respectively. The price of the existing smart phone is $380 per unit, with variable costs of $145 each and fixed costs of $4.3 million per year. If Conch Republic does introduce the new smart phone, sales of the existing smart phone will fall by 30,000 units per year, and the price of the existing units will have to be lowered to $210 each. Net working capital for the smart phones 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 required return of 12 percent.
Shelley has asked Jay to prepare a report that answers the following questions.
3. What is the
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- Conch Republic Electronics is a midsized electronics manufacturer located in Keey West,Florida. The company president is Shelly Couts, who inherited the company. The companyoriginally repaired radios and other household appliances when it was founded more than 70years ago. Over the years, the company has expanded, and it is now a reputable manufacturerof various speciality electronic items. Jay McCanless, a recent MBA graduate, has been hiredby the company in its finance department.One of the major revenue-producing items manufactured by Conch Republic is a smartphone.Conch Republic currently has one smartphone model on the market and sales have beenexcellent. The smartphone is a unique item in that it comes in a variety of tropical colors andis preprogrammed to play Jimmy Buffett music. However, as with any electronic item,technology changes rapidly, and the current smartphone has limited features in comparisonwith newer models. Conch Republic spent $1.2 million to develop a prototype…arrow_forwardConch Republic Electronics is a midsized electronics manufacturer located in Keey West,Florida. The company president is Shelly Couts, who inherited the company. The companyoriginally repaired radios and other household appliances when it was founded more than 70years ago. Over the years, the company has expanded, and it is now a reputable manufacturerof various speciality electronic items. Jay McCanless, a recent MBA graduate, has been hiredby the company in its finance department.One of the major revenue-producing items manufactured by Conch Republic is a smartphone.Conch Republic currently has one smartphone model on the market and sales have beenexcellent. The smartphone is a unique item in that it comes in a variety of tropical colors andis preprogrammed to play Jimmy Buffett music. However, as with any electronic item,technology changes rapidly, and the current smartphone has limited features in comparisonwith newer models. Conch Republic spent $1.2 million to develop a prototype…arrow_forwardProblem 1 On 2 May 2022, Elon Musk began a new business, called Space W Inc., company producing food in pills by transforming the air and plants, with the idea of delivering low cost food to all the world citizens. The following transactions were completed by the business during May: 2 May Issued to Elon 1,000 shares of capital stock in exchange for his investment of 5,120,000€ cash. 3 May Purchased land and a building for 1,530,000€ paying 800,000 cash and signing a note payable for the balance. The interest rate for the Note payable is 3% on annual terms, and it will be paid at maturity which will be may 3rd 2024. The land was considered to be worth 630,000€ and the building the remaining amount. 4 May Purchased robots for 4,000,000€ in order to be prepared for the production, and paid cash. 5 May Sold pills for 500,000€ to be paid at the end of the month to the customer Prometeus. 31 May Collected the Accounts Receivable in full. The account…arrow_forward
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