MINICASE

CHAPTER 11 PART 2

SITTI NURJANNAH / 6032211227

 MINICASE

Shelley Couts, the owner of Conch Republic Electronics, had received the capital budgeting
analysis from Jay McCanless for the new smart phone the company is considering. Shelley
was pleased with the results, but she still had concerns about the new smart phone. Conch
Republic had used a small market research fi rm for the past 20 years, but recently the founder
of that firm retired. Because of this, she was not convinced the sales projections presented by
the market research fi rm were entirely accurate. Additionally, because of rapid changes in
technology, she was concerned that a competitor could enter the market. This would likely
force Conch Republic to lower the sales price of its new smart phone. For these reasons, she
has asked Jay to analyze how changes in the price of the new smart phone and changes in the
quantity sold will affect the NPV of the project. Shelley has asked Jay to prepare a memo
answering the following questions.
QUESTIONS
1. How sensitive is the NPV to changes in the price of the new smart phone?
2. How sensitive is the NPV to changes in the quantity sold of the new smart phone?
 ANSWER NO. 1
Assume that the quantity remains fixed. When the price of the smart phones increases with
fixed quantity, then the NPV increases and vice versa
  Year
Harga jual $100/unit   0 1 2 3 4 5
Initial cost -7000         
Produksi 50 unit/tahun inflows   7000 7000 7000 7000 7000
Biaya pembuatan $1000 outflows
Net Inflows
 
 
-1000
5000
-1000
5000
-1000
5000
-1000
5000
-1000
5000
Revenue $5000/tahun Net Cashflows -7000 5000 5000 5000 5000 5000
Discount 10%
Profit $2000/tahun Year Cashflow PV

Discount rate 10% 0

1
-7000
5000
-7000
4950,50
Increase price
  Year
Periode 5 tahun 2 5000 4901,48
  0 1 2 3 4 5
3 5000 4852,95
Initial cost -7000         
4 5000 4804,90
inflows   7000 7000 7000 7000 7000
5 5000 4757,33
outflows   -1000 -1000 -1000 -1000 -1000
NPV 17267,16
Net Inflows   6000 6000 6000 6000 6000
Net Cashflows -7000 6000 6000 6000 6000 6000
Discount 10%
Year Cashflow PV
0 -7000 -7000
1 6000 5940,59
2 6000 5881,78
3 6000 5823,54
4 6000 5765,88
5 6000 5708,79
NPV 22120,59
 ANSWER NO. 2
Assume that the price remains fixed. When the quantity of the smart phones increases with fixed price, then the
NPV increases and vice versa
  Year
Harga jual $100/unit   0 1 2 3 4 5

Produksi 50 unit/tahun
Initial cost -7000         
inflows   7000 7000 7000 7000 7000

Biaya pembuatan $1000 outflows

Net Inflows
 
 
-1000
5000
-1000
5000
-1000
5000
-1000
5000
-1000
5000

Revenue $5000/tahun Net Cashflows

Discount 10%
-7000 5000 5000 5000 5000 5000

Profit $2000/tahun Year

0
Cashflow
-7000
PV
-7000

Discount rate 10% 1

2
5000
5000
4950,50
4901,48
Periode 5 tahun 3
4
5000
5000
4852,95
4804,90
5 5000 4757,33
NPV 17267,16

Increase price
  Year
  0 1 2 3 4 5
Initial cost -7000         
inflows   7000 7000 7000 7000 7000
outflows   -1500 -1500 -1500 -1500 -1500
Net Inflows   6750 6750 6750 6750 6750
Net Cashflows -7000 6750 6750 6750 6750 6750
Discount 10%
Year Cashflow PV
0 -7000 -7000
1 6750 6683,17
2 6750 6617,00
3 6750 6551,48
4 6750 6486,62
5 6750 6422,39
NPV 25760,66
TERIMAKASIH