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Chapter 10 Conch Republic Electronics Given Information Initial Cost's Initial Cost of Equipment Purchase Expected Salvage in (5 yrs.) R&D Spent on Development Marketing study Rate's Tax rate NWC percentage Required return Estimated Sales Volumes / Dep. Rate Sales(units) Depreciation rate (7 -year MACRS) Manufacturing of new smart phone New Smart Phone (unit price) Variable Cost Fix Cost Price of existing smart phone Price of existing Smart Phone (unit price) Variable Cost of existing smart phone Fixed Costs Not introducing new smart phone Possible Price adjustment of existing cell phone Variable Cost of existing smart phone Sales of Units without new smart phone Sales of old Smart Phones (units) Lost sales (units) Computations: Salvage BV of equipment Taxes Salvage CF Projected Income Statement Sales(units) New Lost sales Lost revenue Net sales New additional sales Lost sales Net VC (mfg. new smart phone) Net Sales Net Variable Cost Fixed costs (mfg. new smart phone) Depreciation rate (7 -year MACRS) Depreciation EBT Tax Net Income Include Depreciation OCF Projected Cash Flows Beg End NWC CF Net CF Time Net CF Question (1) (2) (3) (4) 35.00% 20.00% 12.00% Year 1 74,000 14.29% Year 2 95,000 24.49% Year 3 125,000 17.49% Year 4 105,000 12.49% Year 5 80,000 8.93%

$38,500,000 $5,400,000 $750,000 $200,000

$480.00 $185.00 $5,300,000

$310 $125 $1,800,000

$275 $125 Year 1 80000 15000 Year 2 60000 15000

$8,589,350 $1,116,273 $6,516,273 Year 1 74,000 $35,520,000 $4,650,000 $2,275,000 $28,595,000 $13,690,000 $1,875,000 $11,815,000 $28,595,000 $11,815,000 $5,300,000 14.29% $5,501,650 $5,978,350 $2,092,423 $3,885,928 $5,501,650 $9,387,578 Year 2 95,000 $45,600,000 $4,650,000 $1,575,000 $39,375,000 $17,575,000 $1,875,000 $15,700,000 $39,375,000 $15,700,000 $5,300,000 24.49% $9,428,650 $8,946,350 $3,131,223 $5,815,128 $9,428,650 $15,243,778 Year 3 125,000 $60,000,000 Year 4 105,000 $50,400,000 Year 5 80,000 $38,400,000

$60,000,000 $23,125,000 $23,125,000...
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