Spent $750.00 to develop a prototype (or Model) for a new PDA
Spent an additional $200,000 for marketing study to determine the expected sales.
Can manufacture the new PDA with variable cost for $86.00 each.
Fixed Costs for the operation are estimated at $4.3 million per year.
Unit Price $250.00 each
Necessary equipment to produce the PDA will cost $32.5 million, with depreciation for 7 years MACRS schedule.
It is believed that this equipment after 5 years will be worth $3.5 million.
NWC will be 20% of Sales
Changes in NWC will occur in Year 1, with the first year sales.
There is no initial outlay for NWC.
Conch Republic Corporate Tax Rate is 35% and has a 12% required return.
With this information in mind, complete the following questions:
How sensitive is the NPV to changes in the price of the news PDA?
How sensitive is the NPV to changes in the quantity sold?
Should Conch Republic produce the new PDA?
Suppose Conch Republic loses sales on other models because of the introduction of the new model. How would this affect your analysis?
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