Conch Republic Electronics Case Study Help
Formula
(Cash flows)/ (1+r) i
The NPV of this project is 30789215, which suggests that the company should invest in the project, and it is profitable for future.
Sensitivity Analysis (NPV)
Case-1: 20% decline in price
If the price of the product is decreased by 20% there will be a change in NPV, IRR, Payback Period and Profitability Index. NPV from 30789215 to 15854138, IRR from 42% to 28%, Payback period from 3 to 4 yearsapproximately, and Profitability Index from 2.37 to 1.71 times of the investment.(Brigham, 2016)
Case-2: 20% decline in sales volume
By decreasing the sales volume by 20%, there are changes in NPV, IRR, Payback Period and Profitability Index. NPV from30789215 to 22763591, IRR from 42% to 35%, Payback period 3 years approximately, and Profitability Index from 2.37 to 2.01 times of the investment.
Case-2:Decline in both
There are changes in NPV, IRR, Payback Period and Profitability Index. NPV from30789215 to 10815530, IRR from 42% to 23%, Payback period 3 to 4years approximately, and Profitability Index from 2.37 to 1.48 times of the investment.
Recommendations
The company has calculated cash flows of the project and the viability to decide the profitability of the project. All the calculations and measures show a positive impact on the project. The revenues of the company in next five years will be $74,000, 95,000, 125,000, 105,000, and 80,000. The company is already generating excellent performance, so with the new and modern product features; it will be a boom for the company. However, the cash flows are negative in the first year, but the internal rate of return is greater than the required return rate, which indicates that investing in the project would be beneficial.
Conclusion
It is concluded that as Shelley wants to improve the PDA model by adding features that are in trends, she needs to know the project’s impact on the company. For this purpose, she takes help from Jay to calculate necessary measuresthat show the viability of investing in the project. After all, calculations are done and the negative balance of cash flow, the internal rate of return is still more than the required one. Moreover, NPV and profitability index also shows the recovery of the investments carried to start the project............................................
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