公司理财第九版课案例Conch Republic Electronics.docx
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ConchRepublicElectronicsAnalysis
AnalysisofConchRepublicElectronics
Developaprototype
$750000
Sunkcost
Marketstudy
$200000
ThenewPDA:
Variablecostperunit
$155
Fixedcostperyear
$4700000
Priceofperunit
$360
Necessaryequipment
$21500000
Depreciation
Seven-yearMACRS
Salvagevalue
$4100000
Taxrate
35%
Requiredreturn
12%
Year
MACRSPercentage
Depreciation
Salesvolume
1
14.29%
$3,072,350
74000
2
24.49%
$5,265,350
95000
3
17.49%
$3,760,350
125000
4
12.49%
$2,685,350
105000
5
8.93%
$1,919,950
80000
Theexistingmodel:
Priceperunit
$290
Variablecostperunit
$120
Fixedcostperyear
$1800000
Salesvolumeoffallbyperyear
15000
Pricebeloweredofperunit
$255
Salesvolumeforyear1
80000
Salesvolumeforyear2
60000
ThereisnoinitialoutlayforNWC;andNetWorkingCapitalforthePDAswillbe20%ofsales.
Thevalueoftheequipmentinfiveyearswillbe$4.1million.
IntroducingthenewPDA,itcausestheexitingPDAsalesfalldownandthepricefalldown.
Therefore:
salesforyear1=74000*$360-15000*$290-（80000-15000）*（$290-$255）
=$20015000
Variablecostforyear1=74000*$155-15000*$120=$9670000
Salesforyear2=95000*$360-15000*$290-（60000-15000）*（$290-$255）
=$28275000
Variablecostforyear2=95000*$155-15000*$120=$12925000
Year
1
2
3
4
5
Sales
$20,015,00
0
$28,275,00
0
$45,000,000
$37,800,00
0
$28,800,00
0
Variable
cost
$9,670,000
$12,925,00
0
$19,375,000
$16,275,00
0
$12,400,00
0
Fixedcost
$4,700,000
$4,700,000
$4,700,000
$4,700,000
$4,700,000
Totalcost
$14,370,00
0
$17,625,00
0
$24,075,000
$20,975,00
0
$17,100,00
0
Depreciati
on
$3,072,350
$5,265,350
$3,760,350
$2,685,350
$1,919,950
EBIT
$2,572,650
$5,384,650
$17,164,650
$14,139,65
0
$9,780,050
Tax
$900,427.5
0
$1,884,627.
50
$6,007,627.5
0
$4,948,877.
50
$3,423,017.
50
Netincome
$1,672,222.
50
$3,500,022.
50
$11,157,022.
50
$9,190,772.
50
$6,357,032.
50
Networkingcapital=sales*20%
Projectcashflow=Projectoperatingcashflow-Projectchangesinnetworkingcapital-projectcapitalspending
Operatingcashflow=EBIT+Depreciation-TaxesChangeinNWC=EndingNWC-BeginningNWC
Year
1
2
3
4
5
Operatingcashflow
$4,744,572.50
$8,765,372.50
$14,917,372.50
$11,876,122.50
$8,276,982.50
networkingcapital
$4,003,000
$5,655,000
$9,000,000
$7,560,000
$5,760,000
initialNWC
$0
$4,003,000
$5,655,000
$9,000,000
$7,560,000
EndingNWC
$4,003,000
$5,655,000
$9,000,000
$7,560,000
$0
ChangeinNWC
$4,003,000
$1,652,000
$3,345,000
（$1,440,000）
（$7,560,000）
NETCashflow
$741,572.50
$7,113,372.50
$11,572,372.50
$13,316,122.50
15836982.5
Thebookvalueofequipmentafterthedepreciation=$21500000-$3,072,350-
$5,265,350-$3,760,350-$2,685,350-$1,919,950=$4796650
Pretaxsalvagevalueofequipment=$4100000
After-taxcashflowofequipment=$4100000+（$4796650-$4100000）*35%=$4343827.5
Year
Cashflow
0
（$21,500,000.00）
1
$741,572.50
2
$7,113,372.50
3
$11,572,372.50
4
$13,316,122.50
5
$20180810
Part1
1Whatisthepaybackperiodoftheproject?
Year
Cashflow
Remaining
PV
0
（$21,500,000.00）
1
$741,572.50
（$20,758,427.50）
$662,118.30
2
$7,113,372.50
（$13,645,055.00）
$5,670,737.01
3
$11,572,372.50
（$2,072,682.50）
$8,236,986.17
4
$13,316,122.50
$11,243,440.00
$8,462,636.58
5
$20180810
$11,451,133.5
6
Paybackperiod=3+（$13,316,122.50-$11,243,440.00）/$13,316,122.50
=3.16years
2.Whatistheprofitabilityindexoftheproject?
PI=（thepresentvalueofthefuturecashflow）/（initialinvestment）
PVofthefuturecashflow=$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.WhatistheIRRoftheproject?
IRRisthereturnthatmakestheNPV=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）
UsetheEXCELwecangettheIRR=27.62%
4.WhatistheNPVoftheproject?
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.HowsensitiveistheNPVtochangeinthepriceofthenewPDA?
Wesupposethepriceincrease$10,sothepricewillbe$370perunit
Therefore:
Year
1
2
3
4
5
Sales
$20,755,00
0
$29,225,00
0
$46,250,000
$38,850,00
0
$29,600,00
0
Variable
cost
$9,670,000
$12,925,00
0
$19,375,000
$16,275,00
0
$12,400,00
0
Fixedcost
$4,700,000
$4,700,000
$4,700,000
$4,700,000
$4,700,000
Totalcost
$14,370,00
0
$17,625,00
0
$24,075,000
$20,975,00
0
$17,100,00
0
Depreciati
on
$3,072,350
$5,265,350
$3,760,350
$2,685,350
$1,919,950
EBIT
$3,312,650
$6,334,650
$18,414,650
$15,189,65
0
$10,580,05
0
Tax
$1,159,427.
50
$2,217,127.
50
$6,445,127.5
0
$5,316,377.
50
$3,703,017.
50
Netincome
$2,153,222.
50
$4,117,522.
50
$11,969,522.
50
$9,873,272.
50
$6,877,032.
50
Year
1
2
3
4
5
Operatingcash
flow
$5,225,57
2.50
$9,382,87
2.50
$15,729,87
2.50
$12,558,62
2.50
$8,796,982.
50
networking
capital
$4,151,00
0
$5,845,00
0
$9,250,000
$7,770,000
$5,920,000
initialNWC
$0
$4,151,00
0
$5,845,000
$9,250,000
$7,770,000
EndingNWC
$4,151,00
0
$5,845,00
0
$9,250,000
$7,770,000
$0
Changein
NWC
$4,151,00
0
$1,694,00
0
$3,405,000
（$1,480,000
）
（$7,770,000
）
NETCashflow
$1,074,57
2.50
$7,688,87
2.50
$12,324,87
2.50
$14,038,62
2.50
$16,566,98
2.50
Year
Cashflow
PV
0
（$21,500,000.00）
1
$1,074,572.50
$959,439.73
2
$7,688,872.50
$6,129,522.08
3
$12,324,872.50
$8,772,600.80
4
$14,038,622.50
$8,921,798.39
5
$20,910,810.00
$11,865,355.17
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:
Thecoefficientofpricesensitive=（$15,148,716.18-$12,983,611.62）/（$370-$360）
=$216510.46
Fromthecoefficientofthepricesensitive,wecanknowthatifthepriceincrease
$1,theNPVincreaseS216510.46.
6.HowsensitiveistheNPVtochangeinquantitysoldoftheNewPDA?
Wesupposethequantityincrease1000peryear.
Therefore:
Year
1
2
3
4
5
Sales
$20,375,00
0
$28,635,00
0
$45,360,000
$38,160,00
0
$29,160,00
0
Variable
cost
$9,825,000
$13,080,00
0
$19,530,000
$16,430,00
0
$12,555,00
0
Fixedcost
$4,700,000
$4,700,000
$4,700,000
$4,700,000
$4,700,000
Totalcost
$14,525,00
0
$17,780,00
0
$24,230,000
$21,130,00
0
$17,255,00
0
Depreciati
on
$3,072,350
$5,265,350
$3,760,350
$2,685,350
$1,919,950
EBIT
$2,777,650
$5,589,650
$17,369,650
$14,344,65
0
$9,985,050
Tax
$972,177.5
0
$1,956,377.
50
$6,079,377.5
0
$5,020,627.
50
$3,494,767.
50
Netincome
$1,805,472.
50
$3,633,272.
50
$11,290,272.
50
$9,324,022.
50
$6,490,282.
50
Year
1
2
3
4
5
Operatingcash
flow
$4,877,82
2.50
$8,898,62
2.50
$15,050,62
2.50
$12,009,37
2.50
$8,410,232.
50
networking
capital
$4,075,00
0
$5,727,00
0
$9,072,000
$7,632,000
$5,832,000
initialNWC
$0
$4,075,00
0
$5,727,000
$9,072,000
$7,632,000
EndingNWC
$4,075,00
0
$5,727,00
0
$9,072,000
$7,632,000
$0
Changein
NWC
$4,075,00
0
$1,652,00
0
$3,345,000
（$1,440,000
）
（$7,632,000
）
NETCashflow
$802,822.
50
$7,246,62
2.50
$11,705,62
2.50
$13,449,37
2.50
$16,042,23
2.50
Year
Cashflow
PV
0
（$21,500,000.00）
1
$802,822.50
$716,805.80
2
$7,246,622.50
$5,776,963.09
3
$11,705,622.50
$8,331,830.88
4
$13,449,372.50
$8,547,319.37
5
$20,386,060.00
$11,567,597.93
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:
Thecoefficientofpricesensitive=（$13,440,517.07-$12,983,611.62）/1000
=$456.91
Fromthecoefficientofthequantitysensitive,wecanknowthatifthequantityincreases1,theNPVincrease$456.91.
Reference
Ross,Stephen.（2010）.Fundamentalsofcorporatefinance:
Chapter10andChapter11Minicase.Asia:
McGraw-HillEducation.
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