Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259277214
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 9, Problem 3CC
Conch Republic Electronics
Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelly Couts, who inherited the company. The company originally repaired radios and other household appliances when it was founded more than 70 years ago. Over the years, the company has expanded, and it is now a reputable manufacturer of various specialty electronic items. Jay McCanless, a recent MBA graduate, has been hired by 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 been excellent. The smartphone 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 smartphone has limited features in comparison with newer models. Conch Republic spent $750,000 to develop a prototype for a new smartphone that has all the features of the existing one 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 smartphone.
Conch Republic can manufacture the new smartphone for $205 each in variable costs. Fixed costs for the operation are estimated to run $5.1 million per year. The estimated sales volume is 64,000, 106,000, 87,000, 78,000, and 54,000 per year for the next five years, respectively. The unit price of the new smartphone will be $485. The necessary equipment can be purchased for $34.5 million and will be
Net working capital for the smartphones will be 20 percent of sales and will occur with the timing of the cash flows for the year (i.e., there is no initial outlay for NWC). Changes in NWC will thus 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.
Shelly 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…
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…
Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The companypresident is Shelly Couts, who inherited the company. The company originally repaired radios and other householdappliances when it was founded over 70 years ago. Over the years, the company has expanded, and it is now a reputablemanufacturer of various specialty electronic items. Jay McCanless, a recent MBA graduate, has been hired by thecompany in its finance department.One of the major revenue-producing items manufactured by Conch Republic is a smart phone. Conch Republiccurrently has one smart phone model on the market and sales have been excellent. The smart phone is a unique itemin that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as withany electronic item, technology changes rapidly, and the current smart phone has limited features in comparison withnewer models. Conch Republic spent $300,000 to develop a prototype for…
Chapter 9 Solutions
Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 9.1 - Prob. 9.1ACQCh. 9.1 - What is the stand-alone principle?Ch. 9.2 - Prob. 9.2ACQCh. 9.2 - Prob. 9.2BCQCh. 9.2 - Explain why interest paid is not a relevant cash...Ch. 9.3 - What is the definition of project operating cash...Ch. 9.3 - In the shark attractant project, why did we add...Ch. 9.3 - Prob. 9.3CCQCh. 9.4 - Prob. 9.4ACQCh. 9.4 - How is depreciation calculated for fixed assets...
Ch. 9.5 - Prob. 9.5ACQCh. 9.5 - What are some potential sources of value in a new...Ch. 9.6 - What are scenario and sensitivity analyses?Ch. 9.6 - Prob. 9.6BCQCh. 9.7 - Why do we say that our standard discounted cash...Ch. 9.7 - What are managerial options in capital budgeting?...Ch. 9.7 - Prob. 9.7CCQCh. 9 - Prob. 9.1CCh. 9 - Section 9.2What are sunk costs?Ch. 9 - Prob. 9.3CCh. 9 - Section 9.4If a firms current assets are 150,000,...Ch. 9 - A project has a positive NPV. What could drive...Ch. 9 - If a firms variable cost per unit estimate used in...Ch. 9 - Section 9.7Capital rationing exists when a company...Ch. 9 - Opportunity Cost. In the context of capital...Ch. 9 - Depreciation. Given the choice, would a firm...Ch. 9 - Prob. 3CTCRCh. 9 - Stand-Alone Principle. Suppose a financial manager...Ch. 9 - Prob. 5CTCRCh. 9 - Capital Budgeting Considerations. A major college...Ch. 9 - Prob. 7CTCRCh. 9 - Prob. 8CTCRCh. 9 - Prob. 9CTCRCh. 9 - Sensitivity Analysis and Scenario Analysis. What...Ch. 9 - LO19.11Marginal Cash Flows. A co-worker claims...Ch. 9 - Prob. 12CTCRCh. 9 - Forecasting Risk. What is forecasting risk? In...Ch. 9 - Options and NPV. What is the option to abandon?...Ch. 9 - Prob. 1QPCh. 9 - Relevant Cash Flows. Winnebagel Corp. currently...Ch. 9 - Prob. 3QPCh. 9 - Calculating OCF. Consider the following income...Ch. 9 - Calculating Depreciation. A piece of newly...Ch. 9 - Prob. 6QPCh. 9 - Prob. 7QPCh. 9 - Calculating Project OCF. Rolston Music Company is...Ch. 9 - Calculating Project OCF. H. Cochran, Inc., is...Ch. 9 - Calculating Project NPV. In the previous problem,...Ch. 9 - Calculating Project Cash Flow from Assets. In the...Ch. 9 - NPV and Modified ACRS. In the previous problem,...Ch. 9 - Project Evaluation. Kolbys Korndogs is looking at...Ch. 9 - Project Evaluation. Your firm is contemplating the...Ch. 9 - Project Evaluation. In the previous problem,...Ch. 9 - Prob. 16QPCh. 9 - Prob. 17QPCh. 9 - Sensitivity Analysis. We are evaluating a project...Ch. 9 - Prob. 19QPCh. 9 - Prob. 20QPCh. 9 - Cost-Cutting Proposals. CSM Machine Shop is...Ch. 9 - Sensitivity Analysis. Consider a three-year...Ch. 9 - Project Analysis. You are considering a new...Ch. 9 - Project Analysis. McGilla Golf has decided to sell...Ch. 9 - Project Evaluation. Aria Acoustics, Inc. (AAI),...Ch. 9 - Prob. 26QPCh. 9 - Conch Republic Electronics Conch Republic...Ch. 9 - Conch Republic Electronics Conch Republic...Ch. 9 - Conch Republic Electronics Conch Republic...Ch. 9 - Conch Republic Electronics Conch Republic...Ch. 9 - Conch Republic Electronics Conch Republic...Ch. 9 - Conch Republic Electronics Conch Republic...Ch. 9 - Conch Republic Electronics Conch Republic...Ch. 9 - Conch Republic Electronics Conch Republic...
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- Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The companypresident is Shelly Couts, who inherited the company. The company originally repaired radios and other householdappliances when it was founded over 70 years ago. Over the years, the company has expanded, and it is now a reputablemanufacturer of various specialty electronic items. Jay McCanless, a recent MBA graduate, has been hired by thecompany in its finance department.One of the major revenue-producing items manufactured by Conch Republic is a smart phone. Conch Republiccurrently has one smart phone model on the market and sales have been excellent. The smart phone is a unique itemin that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as withany electronic item, technology changes rapidly, and the current smart phone has limited features in comparison withnewer models. Conch Republic spent $300,000 to develop a prototype for…arrow_forwardEco Plastics Company has been revolutionizing plastic and trying to do its part to save the environment. Eco’s founder, Marion Cosby, developed a biodegradable plastic that her company is marketing to manufacturing companies throughout the southeastern United States. After operating as a private company for six years, Eco went public in 2009 and is listed on the Nasdaq stock exchange. As the chief financial officer of a young company with lots of investment opportunities, Eco’s CFO closely monitors the firm’s cost of capital. The CFO keeps tabs on each of the individual costs of Eco’s three main financing sources: long-term debt, preferred stock, and common stock. The target capital structure for ECO is given by the weights in the following table: Source of capital weight Long term debt 30 % Preferred stock 20 % Common stock equity 50 % Total 100 % At the present time, Eco can raise debt by selling 20-year bonds with a $1,000 par value and a 10.5%…arrow_forwardEco Plastics Company has been revolutionizing plastic and trying to do its part to save the environment. Eco’s founder, Marion Cosby, developed a biodegradable plastic that her company is marketing to manufacturing companies throughout the southeastern United States. After operating as a private company for six years, Eco went public in 2009 and is listed on the Nasdaq stock exchange. As the chief financial officer of a young company with lots of investment opportunities, Eco’s CFO closely monitors the firm’s cost of capital. The CFO keeps tabs on each of the individual costs of Eco’s three main financing sources: long-term debt, preferred stock, and common stock. The target capital structure for ECO is given by the weights in the following table: Source of capital weight Long term debt 30 % Preferred stock 20 % Common stock equity 50 % Total 100 % At the present time, Eco can raise debt by selling 20-year bonds with a $1,000 par value and a 10.5%…arrow_forward
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