11TH EDITION FUNDAMANTAL OF CORPORATE FINANCE. MINI CASE CONCH REPUBLIC ELECTRON
ID: 2734814 • Letter: 1
Question
11TH EDITION FUNDAMANTAL OF CORPORATE FINANCE. MINI CASE CONCH REPUBLIC ELECTRONICS, PART 2
USING INFORMATION FROM CHAPTER 10 MINICASE
1. hOW SENSITIVE IS THE NPV TO CHANGE IN THE PRICE OF THE NEW SMART PHONE?
2. HOW SENSIVITE IS THE NPV TO THE CHANGES IN THE QUNITITY SOLD OF THE NEW SMART PHONE?
old phone 95000 65000 Variable Costs $ 215.00 Salvage $ 6,100,000.00 old selling price 380 30000 MACRS Fixed Costs $ 6,100,000.00 Tax Rate 35% new selling price 210 year % Unit Price $ 520.00 Return Rate 12% old vairiable cost 145 1 0.1429 Equipment $ 40,500,000.00 2 0.2449 Units Sold 155,000 165,000 125,000 95,000 75,000 3 0.1749 4 0.1249 year 0 1 2 3 4 5 5 0.0893 ending BV $ 34,712,550.00 $ 24,794,100.00 $ 17,710,650.00 $ 12,652,200.00 $ 9,035,550.00 6 0.0892 7 0.0893 Sales $ 80,600,000.00 $ 85,800,000.00 $ 65,000,000.00 $ 49,400,000.00 $ 39,000,000.00 8 0.0446 Lost Sales $ 11,400,000.00 $ 11,400,000.00 Lost Revenue $ 11,050,000.00 $ 5,950,000.00 Net Sales $ 58,150,000.00 $ 68,450,000.00 $ 65,000,000.00 $ 49,400,000.00 $ 39,000,000.00 Variable Cost New $ 33,325,000.00 $ 35,475,000.00 $ 26,875,000.00 $ 20,425,000.00 $ 16,125,000.00 Lost Variable Cost $ 4,350,000.00 $ 4,350,000.00 Net Variable Cost $ 28,975,000.00 $ 31,125,000.00 $ 26,875,000.00 $ 20,425,000.00 $ 16,125,000.00 Fixed Cost $ 6,100,000.00 $ 6,100,000.00 $ 6,100,000.00 $ 6,100,000.00 $ 6,100,000.00 Depreciation $ 5,787,450.00 $ 9,918,450.00 $ 7,083,450.00 $ 5,058,450.00 $ 3,616,650.00 EBIT $ 17,287,550.00 $ 21,306,550.00 $ 24,941,550.00 $ 17,816,550.00 $ 13,158,350.00 Taxes $ 6,050,642.50 $ 7,457,292.50 $ 8,729,542.50 $ 6,235,792.50 $ 4,605,422.50 Net Income $ 11,236,907.50 $ 13,849,257.50 $ 16,212,007.50 $ 11,580,757.50 $ 8,552,927.50 Operating Cash Flow $ 17,024,357.50 $ 23,767,707.50 $ 23,295,457.50 $ 16,639,207.50 $ 12,169,577.50 Capital Spending $ (40,500,000.00) $ 7,127,442.50 Net NWC $ (11,630,000.00) $ (2,060,000.00) $ 690,000.00 $ 3,120,000.00 $ 9,880,000.00 Net Cash Flow $ (40,500,000.00) $ 5,394,357.50 $ 21,707,707.50 $ 23,985,457.50 $ 19,759,207.50 $ 29,177,020.00 NWC Balance Change 0 Net Cash Flows Discounted Cash Flows $ 11,630,000.00 $ (11,630,000.00) $ (40,500,000.00) $ 13,690,000.00 $ (2,060,000.00) $ 5,394,357.50 $ (35,105,642.50) 1 $ 13,000,000.00 $ 690,000.00 $ 21,707,707.50 $ (13,397,935.00) 1 $ 9,880,000.00 $ 3,120,000.00 $ 23,985,457.50 $ 10,587,522.50 0.56 $ 19,759,207.50 0 NPV $ 27,807,175.32 $ 29,177,020.00 0 IRR 32.28% 2.56 payback PAYBACk 2.56 PI $ 1.69Explanation / Answer
SENSITIVITY ANALYSIS:
NPV = INFLOW - OUTFLOW
= ((Selling Price - Variable Cost) X No. of units sold - Fixed cost ) X Annuity Factor - Equipment Purchased.
= ((210 - 215) X 155000 - $6100000) X 3.6047 - $40500000
= - $65282312.5/- ( NEGATIVE NPV )
SENSITIVE THE NPV TO CHANGE IN THE PRICE OF THE NEW SMART PHONE:
= NPV / No. of units sold x Selling Price x Annuity Factor
= -$65282312.5 / 155000 x 210 x 3.6047
= -0.55 (fall by 55% before NPV Zero)
SENSITIVE THE NPV TO CHANGE IN VOLUME OF THE NEW SMART PHONE:
= NPV / No. of units sold x Selling Price - Variable cost x Annuity Factor
= -$65282312.5 / 155000 x (210 - 215) x 3.6047
= 233.68 (increase by 233.68% before NPV Zero)
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